Insurance Professional Standards & Competencies 5 — Questions and Answers
Question 1: In insurance, which term refers to the legal concept that prevents a party from asserting a position inconsistent with one previously taken if the other party relied on the earlier position?
- Waiver
- Estoppel (Correct answer)
- Subrogation
- Adhesion
Correct answer: Estoppel
Estoppel prevents an insurer from denying coverage based on a position it previously abandoned if the insured relied on that position to their detriment.
Question 2: An insurance agent's license can be suspended for failing to notify the state insurance department of which of the following within the required timeframe?
- A change in the agent's vehicle insurance carrier
- A felony criminal conviction (Correct answer)
- A change in the agent's personal health insurance plan
- An increase in the agent's E&O coverage limits
Correct answer: A felony criminal conviction
Most states require agents to report felony convictions to the insurance department within a specified period, and failure to do so can result in license suspension.
Question 3: Which professional competency involves an agent's ability to analyze a client's existing coverage and identify protection gaps?
- Underwriting proficiency
- Needs analysis (Correct answer)
- Claims advocacy
- Risk transfer management
Correct answer: Needs analysis
Needs analysis is the process of reviewing a client's current coverage, financial situation, and life circumstances to identify gaps and recommend appropriate solutions.
Question 4: What is the ethical obligation of an agent when a client makes a statement on an application that the agent knows is false?
- Complete the application as the client directs to avoid conflict
- Correct the application and inform the client of the importance of accuracy (Correct answer)
- Refuse to submit the application without reporting it
- Ignore the discrepancy if it will not affect the premium
Correct answer: Correct the application and inform the client of the importance of accuracy
An agent must ensure the application is accurate and counsel the client that false statements can void coverage or result in claim denial.
Question 5: Which of the following actions by an insurer constitutes unfair claims settlement practices?
- Requiring a signed proof of loss form
- Investigating a claim before payment
- Denying a claim without a reasonable investigation (Correct answer)
- Paying a claim within the statutory period
Correct answer: Denying a claim without a reasonable investigation
Denying a claim without conducting a reasonable investigation is a prohibited unfair claims settlement practice under most state insurance codes.
Question 6: A client's right to privacy under insurance regulations primarily protects against:
- Insurers raising premiums without notice
- Unauthorized disclosure of nonpublic personal information (Correct answer)
- Agents recommending unsuitable products
- Insurers canceling policies without cause
Correct answer: Unauthorized disclosure of nonpublic personal information
Privacy regulations, such as those stemming from the Gramm-Leach-Bliley Act, restrict insurers and agents from sharing nonpublic personal information without client consent.
Question 7: When an agent tells a prospect that a competitor's policy 'is about to go insolvent' without factual basis, this is an example of:
- Churning
- Twisting
- Defamation/disparagement (Correct answer)
- Rebating
Correct answer: Defamation/disparagement
Making false statements about a competitor's financial stability to gain business is defamation or trade disparagement, an unfair trade practice.
Insurance Professional Standards & Competencies 5
In insurance, which term refers to the legal concept that prevents a party from asserting a position inconsistent with one previously taken if the other party relied on the earlier position?