Question

The Superintendent will not renew an agent or broker's license upon finding that the license has been used to write controlled business. Which of the following would be a violation of controlled business practices?

A) Soliciting family members
B) Steering business to favored insurers
C) Charging excessive fees
D) Engaging in fair competition

Answer 1

Controlled business practices involve writing insurance policies for personal gain, such as for oneself or family. Violations include soliciting family members, steering business towards certain insurers, and charging excessive fees. Fair competition is not considered a violation.

Step-by-step explanation:

An agent or broker's license may not be renewed if it has been used to write controlled business. Controlled business refers to insurance policies that are written for oneself, one's employer, or immediate family members, to the extent that they exceed the allowable percentage of the total business written by the agent or broker. The following activities could be considered violations of controlled business practices:

• Soliciting family members directly for the purpose of achieving sales targets.
• Steering business to favored insurers in exchange for personal gains.
• Charging excessive fees for services rendered.

Engaging in fair competition is not a violation of controlled business practices; instead, it is part of ethical business conduct.

Answer 2

The correct answer is B. Steering business to favored insurers is a violation of controlled business practices. Such practices disrupt market fairness and can lead to biased advice, which is why they are typically regulated to prevent any potential conflicts of interest or market abuses.

Step-by-step explanation:

The Superintendent will not renew an agent or broker's license upon finding that the license has been used to write controlled business. A violation of controlled business practices can be identified as steering business to favored insurers.

Controlled business refers to insurance business that is limited to covering the agent, their family, employees, or businesses in which they have an ownership interest. To maintain market fairness and integrity, regulated bodies such as a state's Department of Insurance often set limits on the amount of controlled business an insurance agent or broker can write. Violations such as steering business to favored insurers disrupt market competition and can lead to biased advice to consumers, as agents may prioritize their relationships with certain insurers over their duty to act in the best interests of their clients. While soliciting family members might seem like a violation, it is technically allowed as long as it doesn't exceed the controlled business threshold. Engaging in fair competition is, on the contrary, the expected and legal way of doing business in the insurance industry.