Ethics and Regulatory Compliance Flashcards

A client asks their insurance agent to backdate a policy to avoid a premium increase that took effect last month. What should the agent do?

Answer: Refuse, as backdating to gain a financial advantage is fraudulent

Backdating a policy to gain a financial advantage for the client constitutes fraud and violates insurance regulations.

Under the duty of utmost good faith (uberrimae fidei), which party bears the PRIMARY obligation to disclose all material facts?

Answer: Both the insurer and the applicant equally

Utmost good faith applies to both parties — the applicant must disclose material facts and the insurer must disclose all policy terms and conditions.

An agent discovers a clerical error in a client's policy that actually benefits the client with lower premiums. The agent should:

Answer: Report it to the insurer and inform the client of the correction

Agents must report errors regardless of who benefits, as concealing errors breaches the duty of honesty owed to the insurer.

Which scenario BEST illustrates a conflict of interest that an agent must disclose to a client?

Answer: The agent recommends a product that pays a higher commission than competing products

Recommending a product primarily because it pays a higher commission, without disclosing this, creates a conflict of interest that must be revealed to the client.

A state insurance department investigation finds that an agent consistently replaced existing policies without documenting the client's reasons. This practice is known as:

Answer: Churning

Churning refers to an agent repeatedly replacing a client's own policies to generate new commissions without benefit to the client.

When a client signs a replacement form, what is the agent legally required to provide?

Answer: A comparison of the existing and new policies and a notice of replacement

Replacement regulations require agents to provide a policy comparison and a written notice of replacement so clients can make an informed decision.

An agent is licensed in State A but sells a policy to a client physically located in State B without holding a State B license. This is:

Answer: A violation of nonresident licensing laws

Agents must be licensed in the state where the applicant resides or where the policy is being delivered, regardless of where the agent is licensed.