North Carolina Adjuster Practice Exam

What is the potential consequence for an agent who fails to review policy provisions with the insured?

1. Reduction in commission

2. License suspension

3. Engagement in an Unfair Settlement Practice

4. Increased liability for claims

The correct answer is: Engagement in an Unfair Settlement Practice

Failing to review policy provisions with the insured can result in engagement in an Unfair Settlement Practice because it undermines the principle of transparency and informed consent in insurance dealings. An agent has a duty to ensure the insured fully understands their policy, including coverage limits, exclusions, and conditions. If an agent neglects this responsibility, it can lead to misunderstandings about what is covered, which may result in the insured being unaware of crucial limitations on their policy. This lack of clarity can lead to disputes when claims arise, potentially qualifying as an unfair practice as the insured may feel misled or inadequately informed about their coverage. In the context of insurance regulations, such practices can attract scrutiny from regulatory authorities, as they impede fair treatment of policyholders. Agents are obligated to conduct themselves in a manner that promotes fairness and trust, thus failing to properly inform insured parties may violate these ethical and legal obligations. Ensuring that insured individuals understand their policy provisions is critical not only for fair practice but also for maintaining strong, trusting relationships between agents and their clients.