Question

An insurance agent is inducing a policyholder to cancel one contract and buy another by misrepresenting the facts and providing incomplete policy comparisons. Which of the following best explains this activity?

A) Ethical behavior in promoting better insurance options.
B) Violation of insurance regulations and consumer protection laws.
C) Standard industry practice for policy upgrades.
D) Enhancing customer satisfaction and policy benefits.

Answer 1

The activity is a violation of insurance regulations, as it involves misrepresentation and incomplete comparisons to entice a policyholder to switch policies, amounting to unethical and illegal behavior.

Step-by-step explanation:

The activity described falls under B) Violation of insurance regulations and consumer protection laws. An insurance agent who misrepresents the facts and provides incomplete policy comparisons to induce policyholders to switch policies is engaging in unethical and illegal practices. This kind of behavior goes against industry standards and can lead to serious consequences for the agent and the company they represent. Insurance markets depend on the concept of sharing risk; however, problems like moral hazard can arise when insured individuals have less incentive to prevent risks, knowing they are covered. Insurance companies use monitoring and preventive measures such as offering discounts to businesses that adopt safety measures or conducting investigations to reduce the prevalence of insurance fraud and moral hazard.