Chapter 4: Rules And Principles Governing The Activities Of Life Insurance Agents And Accident & Sickness Insurance Agents

Chapter Quiz

During his most recent sales meeting, Laquan presents an illustration for his client, Yan, who is also his brother. Yan is currently out of work, but does need the insurance coverage. Laquan tells his brother that he will pay the first year's insurance premium, if Yan agrees to take the new contract immediately. Laquan explains that he is trying to qualify for a sales award, he would be reimbursed for the first years' premium from the commission, and it is important that he reaches his sales goal. What unethical sales practice is Laquan engaging in?
a) Incentive selling

b) Churning

c) Premium rebating

d) Tied selling

c) Premium rebating
Rationale: Premium rebating occurs when an insurance agent offers to pay or return part or all of the premium to the client as an incentive to purchase a policy. In this case, Laquan is offering to pay his brother’s first year premium in order to secure the sale, which is a prohibited and unethical practice. Ref: 4.2.3.3

In Québec, which organization is responsible for the supervision and discipline of corporate agencies?
a) The Chambre de la sécurité financière (CSF)

b) The Autorité des marchés financiers (AMF)

c) The Association des assureurs-vie du Canada (AAVC)

d) The Chambre de l'Assurance de dommages (CAD)

b) The Autorité des marchés financiers (AMF)
Rationale: In Québec, the Autorité des marchés financiers (AMF) is responsible for the supervision and discipline of corporate agencies, including firms and independent partnerships. It also licenses insurance agents and agencies operating in the province. Ref: 4.1.2.6

Identify the primary purpose of the Office of the Superintendent of Financial Institutions (OSFI).
a) Regulating agents and agencies

b) Licensing of agents

c) Determining the financial soundness of life insurance companies

d) Supervising life insurance agents

c) Determining the financial soundness of life insurance companies
Rationale: The Office of the Superintendent of Financial Institutions (OSFI) is responsible for supervising federally regulated insurance companies to ensure they remain financially sound. Its primary role is to assess the financial condition and stability of these companies under federal legislation. Ref: 4.1.1, 4.1.2

Manchu is a licensed insurance advisor who has fallen on some financial hardship. He has been prospecting hard to find new clients but has been unsuccessful, so he turns to his book of existing clients to find organic business opportunities. He begins marketing to his clients who hold term-20 insurance policies and suggests that they instead buy the less expensive term-10 policies. One of his clients, Braydon, later realizes that he is paying a higher cost per thousand for the new term coverage and for less years compared with that of his previous term-20 contract, even though his insurance need has not changed since initially taking out the first contract. What unethical sales practice has Manchu engaged in?
a) Twisting and churning

b) Double down selling

c) Incentive selling

d) Tied selling

a) Twisting and churning
Rationale: Twisting occurs when an agent persuades a client to cancel an existing policy and replace it with another that is not in the client’s best interest. Churning occurs when an agent encourages a client to replace a policy primarily to generate new commission. In this case, Manchu advised Braydon to replace a suitable term-20 policy with a less beneficial term-10 policy, resulting in higher cost per thousand and shorter coverage. This demonstrates both twisting and churning, as the recommendation was not in the client’s best interest and was motivated by commission. Ref: 4.2.3.2

In Alberta, life insurance agents, accident & sickness insurance agents and corporate agencies are licensed by:
a) The Alberta Financial Services Agency.

b) The Office of the Superintendent of Insurance of Alberta.

c) The Financial and Consumer Affairs Authority of Alberta.

d) The Alberta Insurance Council.

d) The Alberta Insurance Council.

Rationale: In Alberta, the Alberta Insurance Council is responsible for licensing life insurance agents, accident and sickness insurance agents, and corporate agencies. It oversees the licensing and conduct of these intermediaries within the province. Ref: 4.1.2.2

The mandate and mission of the Office of the Privacy Commissioner of Canada is:
a) to facilitate and promote an efficient and effective insurance regulatory system in Canada to serve the public interest.

b) to ensure life insurance agents comply with Canada’s Proceeds of Crime and Terrorist Financing Act.

c) to provide clients with assistance to their enquiries pertaining to Canadian life and health insurance products and services.

d) to administer enforcement of the federal Personal Information Protection and Electronic Documents Act.

d) to administer enforcement of the federal Personal Information Protection and Electronic Documents Act.

Rationale: The Office of the Privacy Commissioner of Canada is responsible for enforcing PIPEDA, which governs how organizations collect, use, and protect personal information in the private sector. Its mandate is to protect and promote the privacy rights of individuals. Ref: 4.1.4.1

Joan is a licensed insurance agent. It is very important to her that she complies with all the regulations of the insurance industry. Identify the activity that is regulated on both the federal and provincial levels.
a) Licensing of insurance agents

b) The financial soundness of insurance companies

c) Marketing of insurance products

d) Regulating insurers

b) The financial soundness of insurance companies
Rationale: Both the federal and provincial/territorial governments are involved in regulating the financial soundness of insurance companies. Federally, OSFI oversees federally incorporated insurers, while provincial and territorial regulators oversee insurers incorporated within their jurisdictions. Therefore, financial soundness is regulated at both levels. Ref: 4.1.1

Claudine is working with Sam, a licensed insurance agent. She is concerned about what would happen if she purchases insurance from a certain insurer and that insurer runs into financial difficulty.

Sam should inform Claudine about the protection offered by:
a) Assuris.

b) Provincial and Territorial governments.

c) Canadian Council of Insurance Regulators.

d) Canadian Deposit Insurance Corporation.

a) Assuris.
Rationale: Assuris is a not-for-profit organization that protects Canadian policyholders if their life insurance company becomes insolvent. It provides a level of protection to ensure that policyholders continue to receive benefits even if the insurer fails. Therefore, Sam should inform Claudine about the protection offered by Assuris in the event of insurer financial difficulty. Ref: 4.1.4.3