Question

Richard, a salesman for a car dealership, also holds an insurance agent's license with Bemond Insurance. Julia purchases a car from Richard, who insists that Julia obtain insurance on the car from Bemond. When she refuses, Richard tells Julia that the loan on her new car will be denied unless she purchases a policy from Bemond. The unfair trade practice in which Richard is engaging in this cause would be characterized as...

a) Coercion
b) Misrepresentation
c) Defamation
d) Collusion

Answer 1

Richard is engaging in coercion by forcing Julia to buy insurance from a specific provider to approve a loan. Government regulations may require insurance but do not mandate buying from a specific company, to prevent issues like adverse selection.

Step-by-step explanation:

In the scenario presented, Richard, the salesman who insists on Julia purchasing insurance from Bemond Insurance as a condition for obtaining a loan for her car, is engaging in a practice known as coercion. This unfair trade practice involves applying pressure on the buyer to purchase a product or service against their will. It is an unethical tactic because it restricts the consumer's freedom to choose and can distort market competition.

Government interventions in insurance markets can include mandates that require individuals to purchase insurance, for example, auto insurance for car owners or homeowner's insurance for those with a mortgage. These interventions help prevent problems like adverse selection, where insurance companies might avoid selling insurance to high-risk individuals, and instead base prices on an average risk for the market. However, even with such mandates, companies are not forced to provide insurance to everyone, and they may still avoid high-risk customers.