Chapter 1 – Essential Skills for the Insurance Professional

Question-and-Answer flashcards covering definitions, legal concepts, distribution systems, duties, regulation, and E&O issues from Chapter 1.

What is the basic definition of insurance?

A contract in which the insurer, for monetary consideration, agrees to reimburse the insured for loss or liability on a defined subject caused by specified perils.

How is risk defined in insurance terminology?

The chance of loss; the possible loss or destruction of property or the possible incurring of a liability.

What distinguishes speculative risk from pure risk?

Speculative risk involves a chance of loss or profit, whereas pure risk involves only the chance of loss with no possibility of gain.

List the three main categories of insurable risks.

(1) Personal risks, (2) Property risks (direct and indirect), and (3) Liability risks.

Give two examples of personal risks.

Death and physical disability (others: old age, unemployment).

What are the three broad classes of insurance?

Personal lines, Commercial lines, and Special risks (e.g., aviation, marine, high-risk industrial).

Who is an insurance intermediary?

An agent or broker who owes a duty of care to both the consumer and the insurers they represent and negotiates insurance or reinsurance contracts.

Differentiate between an independent agent and an exclusive agent.

An independent agent contracts with two or more insurers to sell their policies, while an exclusive agent represents and sells for only one insurer.

What is a managing general agent (MGA)?

An independent business operation authorized by several insurers to solicit business on their behalf and that usually does not deal directly with clients.

Describe the independent agency system of distribution.

Insurance is marketed through independent contractors (agents) who sell on a commission or fee basis for one or more insurers.

In the independent brokerage system, who owns the client list?

The brokerage (the broker), not the insurer.

How does a direct writer distribute insurance?

The insurance company sells directly to the public without using independent agents or brokers; business belongs to the insurer, and representatives are salaried.

What is a wholesale broker?

A broker who acts as an intermediary between a retail agent/broker and an insurer, often specializing in non-standard or difficult risks.

State one advantage and one disadvantage of the broker channel for clients.

Advantage: One broker can access multiple insurers for the client. Disadvantage: Possible delays in renewals or limited market canvassing.

What legal doctrine governs the principal and agent relationship?

The law of agency, where the agent is authorized to act on behalf of the principal.

Name Canada’s two legal systems relevant to agency.

Civil Code of Québec and Common Law (rest of Canada).

Under Québec’s Civil Code, what is the term for an agency contract?

Mandate: between a mandator (principal) and a mandatory (agent).

Can an intermediary act for both insurer and client? Under what condition?

Yes, but only with permission from both parties to avoid conflict of interest as required by common law.

Differentiate between express and implied authority of an agent.

Express authority is specifically stated in words or writing; implied authority arises from actions indicating a principal-agent relationship even without explicit terms.

What principle of utmost good faith is Latin-named?

Uberrimae fides – both parties must fully disclose all material information.

Define a material fact in insurance.

A fact that would influence an insurer’s decision to accept or reject a risk or set the premium.

List two duties an intermediary owes to an insurer.

(1) Disclose all material facts, and (2) adhere to underwriting guidelines.

List two duties an intermediary owes to a client.

(1) Act in the client’s best interest, and (2) provide competent advice on coverage needs.

What are the four key aspects of intermediary regulation?

Qualification, Licensing, Operating requirements, and Renewal of license.

Who licenses insurance agents in an all-government model?

The provincial or territorial insurance regulator.

Which body licenses brokers in Ontario?

Registered Insurance Brokers of Ontario (RIBO), a self-regulatory organization.

What is E&O insurance?

Errors and Omissions insurance that protects professionals against liability for financial losses resulting from mistakes or failures in their professional duties.

What is the best defence against an E&O claim?

Comprehensive documentation, communication, and adherence to ethical standards.

Identify the most common cause of E&O claims.

Inadequate coverage—such as failing to provide appropriate or timely insurance for a client’s exposure.

Give two examples of inadequate coverage errors.

Failing to explain exclusions or failing to place coverage in time before a loss occurs.

Name three ethical standards agents must uphold to maintain a licence.

(1) Comply with Insurance Acts, (2) act competently and avoid fraud or misrepresentation, and (3) remit premiums to insurers as stipulated.

What is a claim in insurance terminology?

A demand made by one party against another for indemnity or restitution for personal injury or property damage arising out of negligence or a contractual right.

Why might a province issue a restricted or graduated licence?

To allow individuals to sell only certain classes of insurance or to progress through levels as they gain knowledge and experience.

How often must Saskatchewan intermediaries complete an ethics course?

Every five years as part of licence renewal requirements.

Why should intermediaries obtain a client’s signature when coverage is declined?

To prove the client was offered coverage and knowingly refused, helping defend against future E&O claims.