CAIB 3 Chapter 5 Study Questions with
Answers
The agreements brokerages have with the insurance companies they represent vary from one
insurance company to another. Acts committed by a broker that are contrary to the brokerage
agreement could jeopardize that contract. Identify the potential situation when a broker
violates a term of a brokerage agreement. - ✔✔Errors and omissions situations.
Certain topics are universal to every broker agreement. Identify the nine most common
sections of a brokerage agreement. - ✔✔1. Termination
2. Hold Harmless
3. EDI Provisions
4. Authority
5. Billing Procedures
6. Commissions
7. Privacy Act
8. Ownership of expirations
9. Other Provisions
The insurance company will provide the brokerage with the rules and rates for the various kinds
of insurance offered. Identify three guidelines generally present regarding binding authority. -
✔✔1. Guidelines regarding the types of risks permitted to be bound
2. Guidelines regarding the limits for each type will be stated
3. Guidelines regarding risks not permitted to be bound.
The ownership of expirations is the basis of the independent insurance broker system. Briefly
explain what this statement means. - ✔✔Brokerages which retain ownership of their clients'
files also control the placement of insurance for those clients. By way of contrast, with direct
writers the expirations will be owned by the insurance company and not the brokerage.
, Billing procedures must be spelled out in the brokerage agreement. Identify the two billing
types that are generally used by brokerages. - ✔✔1. Agency Bill
2. Direct Bill
When premiums are billed by the agency the premiums due to the insurance company can be
reconciled in one of two ways. Identify and briefly explain the two reconciliation methods. -
✔✔1. Brokerage Statement - The normal procedure is for the brokerage to identify all accounts
due within a specific period, usually one month. A cheque is written on these accounts to the
specific insurer. Most brokerage agreements allow the brokerage 30-60 days to pay accounts.
2. Insurance Company Statement - The insurance company bills the brokerage for the amounts
due to it for a specific period, usually one month.
Identify any three potential advantages to the brokerage when using direct billing. - ✔✔1.
Collection costs are reduced for both the brokerage and the insurance company.
2. Eliminates having the brokerage bill the client, collect the premium and remit the required
amount to the insurance company.
3. Commissions are often deposited directly into the broker's bank account.
Identify any three potential disadvantages to the brokerage when using direct billing. - ✔✔1.
Lack of control over the preparation and maintenance of policies.
2. Loss of personal contact with clients.
3. Mistakes in policy issuance and delivery to clients
before the broker has a chance to review documents.
Answers
The agreements brokerages have with the insurance companies they represent vary from one
insurance company to another. Acts committed by a broker that are contrary to the brokerage
agreement could jeopardize that contract. Identify the potential situation when a broker
violates a term of a brokerage agreement. - ✔✔Errors and omissions situations.
Certain topics are universal to every broker agreement. Identify the nine most common
sections of a brokerage agreement. - ✔✔1. Termination
2. Hold Harmless
3. EDI Provisions
4. Authority
5. Billing Procedures
6. Commissions
7. Privacy Act
8. Ownership of expirations
9. Other Provisions
The insurance company will provide the brokerage with the rules and rates for the various kinds
of insurance offered. Identify three guidelines generally present regarding binding authority. -
✔✔1. Guidelines regarding the types of risks permitted to be bound
2. Guidelines regarding the limits for each type will be stated
3. Guidelines regarding risks not permitted to be bound.
The ownership of expirations is the basis of the independent insurance broker system. Briefly
explain what this statement means. - ✔✔Brokerages which retain ownership of their clients'
files also control the placement of insurance for those clients. By way of contrast, with direct
writers the expirations will be owned by the insurance company and not the brokerage.
, Billing procedures must be spelled out in the brokerage agreement. Identify the two billing
types that are generally used by brokerages. - ✔✔1. Agency Bill
2. Direct Bill
When premiums are billed by the agency the premiums due to the insurance company can be
reconciled in one of two ways. Identify and briefly explain the two reconciliation methods. -
✔✔1. Brokerage Statement - The normal procedure is for the brokerage to identify all accounts
due within a specific period, usually one month. A cheque is written on these accounts to the
specific insurer. Most brokerage agreements allow the brokerage 30-60 days to pay accounts.
2. Insurance Company Statement - The insurance company bills the brokerage for the amounts
due to it for a specific period, usually one month.
Identify any three potential advantages to the brokerage when using direct billing. - ✔✔1.
Collection costs are reduced for both the brokerage and the insurance company.
2. Eliminates having the brokerage bill the client, collect the premium and remit the required
amount to the insurance company.
3. Commissions are often deposited directly into the broker's bank account.
Identify any three potential disadvantages to the brokerage when using direct billing. - ✔✔1.
Lack of control over the preparation and maintenance of policies.
2. Loss of personal contact with clients.
3. Mistakes in policy issuance and delivery to clients
before the broker has a chance to review documents.
