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  Question 1   Morality is Select one: A. Universal and basic to...


 

Question 1

 

Morality is

Select one:

A. Universal and basic to human relationships.

B. Established by the common law.

C. The system that protects property and people.

D. The application of ethics to the needs of stakeholders.

 

 

Question 2

 

Underwriter Joelle is taking an ethics course offered by her company and has come to realize that

Select one:

A. Ethical situations involve distinction between right and wrong.

B. Ethics provides guidance when a law is not applicable.

C. Morals may be a set of standards held by a group.

D. Morals provide a codified set of acceptable behavior.

 

 

Question 3

 

Actuary Josie is contemplating why she sees insurance professionals behave the way they do, both good and bad. She has come to realize that one of the following helps to ensure that individuals uphold defined moral values, namely,

Select one:

A. The rule of reason.

B. Justifiable reliance.

C. Societal pressure.

D. Property rights.

 

 

Question 4

 

Nina is recruiter for Insurance Company and does her best to hire professional employees. A professional needs to exhibit which one of the following in his or her conduct?

Select one:

A. Extraordinarily high intelligence quotient (IQ)

B. Athletic ability to solve problems

C. Physical use of skills to solve problems

D. Power of intellect to solve problems

 

 

Question 5

 

To be considered a professional,

Select one:

A. An insurance practitioner can rely on experience to provide valuable insight about the "real world," and need not obtain any other form of continuing education.

B. An insurance practitioner must act with integrity, be honest and trustworthy, have a sense of equity and fairness, and accept personal accountability.

C. An insurance professional must be altruistic, which means focusing on his or her employer's needs.

D. An insurance practitioner need not understand the implications of risk and its affect on individuals and society.

 

 

Question 6

 

Which one of the following statements is correct?

Select one:

A. Honest, open communication fosters an authentic relationship between insurer and insured.

B. A claim adjuster must always consider settlement options only from the perspective of the insurer.

C. A commitment to high ethical standards is easy to achieve and maintain.

D. The phrase "the buck stops here" encapsulates the concept of integrity.

 

 

Question 7

 

Which one of the following statements is correct?

Select one:

A. Ethical organizations avoid legal issues because their activities comply with applicable laws and regulations.

B. Organizations that demonstrate high ethical standards can find it difficult to recruit and retain employees.

C. The result of maintaining high ethical standards from an economical standpoint is an increase in operational expenses.

D. Organizations that concern themselves with ethics generally have less time to focus their attention on their core business goals.

 

 

Question 8

 

The first steps toward maintaining high ethical standards are to

Select one:

A. Consider whether coverage is appropriate and whether a fair premium is charged.

B. Have knowledge of the law and abide by legal and regulatory requirements.

C. Provide guidance and parameters for acceptable behavior to protect the public interest.

D. Identify a social need and the industry's responsibility to meet that need.

 

 

Question 9

 

Annie is a rehabilitation caseworker for a workers compensation insurer. She is taking a course that covers the history of workers compensation and she is learning that workers compensation is important because

Select one:

A. Insurance professionals fulfilled their social responsibility by developing no-fault workers compensation to assist injured workers and reduce the exposure of the employer.

B. Workers compensation insurance benefits employers and injured employees but cannot benefit society as a whole.

C. Before there was no-fault workers compensation, a worker was not able to sue an employer in tort when an employer negligently injured the worker.

D. Workers compensation is a system where groups of workers take care of injured fellow workers because there is no insurance system in place to compensate injured workers.

 

 

Question 10

 

Demonstrating high ethical standards by explaining coverage and the duties of the policyholder is best carried out by

Select one:

A. An underwriter.

B. A broker.

C. A loss control specialist.

D. A premium auditor.

 

 

Question 11

 

By exhibiting high ethical standards when dealing with policyholders, insurance professionals might be able

Select one:

A. To lower the cost of the insurance product.

B. To reinforce policyholder general willingness to purchase insurance.

C. To earn the trust of skeptical policyholders.

D. To reduce claims expenses while increasing revenue.

 

 

Question 12

 

The major groups to which insurance professionals owe ethical responsibilities are

Select one:

A. Insurers, policyholders, and additional insureds.

B. Policyholders, insurers, and the federal government.

C. Insurers, policyholders, and the public.

D. Policyholders, additional insureds, and the public.

 

 

 

Question 13

 

Laura is an internal auditor for an insurance company. She has uncovered proof of an agency receiving commissions and other benefits in excess of those normally allowed. Laura recognizes that she is presented with an ethical dilemma and decides that she must first identify stakeholders. Which one of the following statements regarding her situation is true?

Select one:

A. The insurer will not be a stakeholder unless there is proof that the insurer had an unearned benefit.

B. Only those who participated in unethical activities can be stakeholders.

C. The agency is not a stakeholder because its actions are the root of the problem.

D. She must not only identify stakeholders but also their rights.

 

 

Question 14

 

Erin is an insurance producer dealing with a renewal of her largest and most important client. This client was responsible for bringing Erin into the insurance business and for her personal and financial success. The client tells her that he is very close to purchasing another company that would have troublesome liability exposures. He asks Erin not to reveal any information at this time. Erin knows that after renewal, if the client closes the purchase, insurers will have to automatically cover the new liability exposures for a period of time. This ethical dilemma is best identified as

Select one:

A. Long-term versus short-term.

B. Individual versus community.

C. Truth versus loyalty.

D. Justice versus mercy.

 

 

Question 15

 

Clearwater Claims Services is an independent claims adjusting firm. The firm has an experienced, long-term staff and a reputation for excellent claims handling. One of the firm's major insurer clients has recently been acquired by another insurer and the parent company has a policy of not using outside adjusting firms. This has resulted in a significant decrease in business for Clearwater. While the firm's management team is confident that they will be able to develop new clients and restore the firm's flow of business, in the interim they have more adjusters on staff than they can keep busy. One alternative would be to lay off surplus staff, but many of these employees have families and require a paycheck. Another option would be to keep the surplus adjusters on staff and incur the expense of their salaries in the interim period in order to retain them. Which one of the following types of ethical conflicts does this situation most clearly represent?

Select one:

A. Truth versus loyalty

B. Long-term versus short-term

C. Justice versus mercy

D. Individual versus community

 

 

 

Question 16

 

Thomas, an insurance agent, has the opportunity to quote coverage on a home valued at two million dollars. If he obtains the business at a reasonable rate, the client will insure his commercial business, with annual net revenue of three hundred million dollars, with Thomas. Thomas knows that if he is able to insure both the home and commercial risk with his top insurer, he will become eligible for a substantial bonus. However, the insurer surcharges premium for any risk with wood as a primary heating source. The client's home is heated with a combination wood/electric furnace.

 

Which one of the following decisions would most likely be considered a situation-based decision for Thomas?

Select one:

A. Discuss the situation with his top insurer and ask for an exception due to the potential commercial policy.

B. Insure the risk with the insurer without disclosing that the primary heating is a wood/electric furnace.

C. Advise the client that he is unable to obtain the coverage and the client should find another broker.

D. Insure the risk with an insurer who does not provide bonuses but also does not surcharge wood heating.

 

 

Question 17

 

Erma travels on company business frequently. Her travel expenses are paid by the company but she must fill out an expense sheet to be reimbursed for her meals. Knowing that receipts are not required for meals that cost up to $25, Erma submits false expense statements for $25 whenever her hotel has free breakfasts. This falsification and padding of expenses is an example of wrongly applied

 

Select one:

A. Rules-based ethical decision making.

B. Altruism-based ethical decision making.

C. Situation-based ethical decision making.

D. Function-based ethical decision making.

 

 

Question 18

 

Sally works for Insurance Company in the underwriting department where she implements policy changes. In reviewing a policyholder's address change, Sally realizes that the policyholder deserves a refund because her policy was being improperly rated at the old address. To make the correction according to company procedures and legal requirements, Sally would have to refund the difference in premium for the last ten renewals and would have to calculate interest on each period. She decides to simply make the address change and save the insurer some time and money instead. Sally's decision is clearly unethical under an analysis that is

Select one:

A. Function-based.

B. Situation-based.

C. Rules-based.

D. People-based.

 

 

Question 19

 

Underwriting supervisor Tom has been receiving reports from his employees that Pam, who works in his unit, has an evening job as a waitress in a nearby town. While this is not a direct conflict of interest, his employees are upset because Pam calls in sick on most Fridays and then works her second job. This is a potential ethical dilemma for Tom and he must be aware of unethical situations that may arise. The first step in addressing this problem is for Tom to

Select one:

A. Search for any applicable code, standard, or regulation that may apply to Pam's situation.

B. Consider the personal impact of the decision such as alienation, isolation, or other negative effects.

C. Complete the background work and then identify the appropriate decision maker.

D. Identify the conflict or ethical problem, if he is using a flow chart or checklist approach.

 

 

Question 20

 

Bethany works in a research department of a large property insurer. Her staff has created technology that would allow the insurer to predict adverse weather better than anyone else. She knows that the technology will give her company a competitive edge, but it also would be valuable to other insurers, governmental agencies and relief organizations. She is wondering whether it would be ethical to not share it with others. Which one of the following would be true if she used an ethical dilemma decision-making flow chart to address this issue?

Select one:

A. She would select a course of action.

B. She would decide that it was not her issue to resolve.

C. She would implement a course of action.

D. She would consider duties owed to involved parties.

 

 

Question 21

 

Caroline is an underwriting supervisor with Durham Insurance. She has been advised of an anonymous reporting of unethical behavior by one of her underwriters. She is anxious about the dilemma, and decides to use the checklist method to help her resolve it. Caroline has gathered information on the ethical problem, determined how it arose, and identified the various stakeholders involved. Which one of the following should be her next step in the process?

 

Select one:

A. Consider whether there is a duty or loyalty to uphold

B. Look for an applicable code or standard

C. Determine who is responsible for resolving the conflict

D. Evaluate the dilemma from the situation-based prospective

 

 

Question 22

 

Mark is faced with making an ethical decision regarding an application he has received from a producer. Mark fears that if he were to take an ethical position on the application, he might lose his job. Which one of the following is true regarding this situation?

 

Select one:

A. Regardless of the decision made, Mark's job is protected by the whistle-blower provision of the Sarbanes-Oxley Act and therefore he does not need to fear loss of his job.

B. Mark is facing an administrative barrier that will not allow him to gather the necessary information to make his decision.

C. Mark is facing a physical barrier that, if unresolved, might prevent him from making the best decision from an ethical standpoint.

D. A code of ethics would not likely help Mark make a decision or know if his decision was supported by the company because hiring and firing are legal considerations that are not addressed by codes of ethics.

 

 

Question 23

 

In which one of the following ways can a culture of greed create administrative barriers to ethical decision making?

Select one:

A. Corporate managers fail to outline and support defined procedures.

B. Threats to personal safety keep employees from reporting unethical activities.

C. Employees who are earning good salaries may be reluctant to bring unethical practices to light.

D. Employees fail to consider all possible outcomes and this failure results in harm.

 

 

Question 24

 

Larissa, an insurance underwriter, was eligible for promotion to a senior underwriting position. She became aware that her supervisor, Vicente, has been approving all business from one specific insurance agent whether the business met underwriting criteria or not. Vicente has a romantic relationship with the agent and the company is not aware of this.

 

The insurer requires all staff members to disclose possible conflicts of interest that come to their attention. Larissa wants to notify her company of this breach of ethics through its anonymous hotline but is aware that the hotline really is not anonymous and the supervisor will find out who notified them. Larissa was not sure what to do and was afraid she would lose her chance of promotion if she reported Vicente.

 

Which one of the following types of barriers to ethical decision making is this situation most typical of?

 

Select one:

A. Procedural barrier

B. Systematic barrier

C. Stakeholder barrier

D. Administrative barrier

 

 

Question 25

 

Michael, CEO of a managing general agency, established a policy requiring all employees to read, understand, agree to, and abide by the Code of Professional Ethics—Ethical Guidelines for Insurance Professionals. He has made this policy known to retail agents and attorneys with whom he deals. The canon most supported by Michael's establishment of this policy is

 

Select one:

A. CPCUs should Aspire to raise the professional and ethical standards in the insurance business.

B. CPCUs should Endeavor at all times to place the public interest above their own.

C. CPCUs should Strive to establish and maintain dignified and honorable relationships with those whom they serve.

D. CPCUs should Seek continually to maintain and improve their professional knowledge, skills, and competencies.

 

 

Question 26

 

The CPCU Code of Professional Conduct applies to

Select one:

A. All CPCUs but no one else.

B. Those considering starting CPCU studies but not applicants.

C. Applicants for the CPCU designation, among others.

D. All insurance professionals.

 

 

Question 27

 

Margaret, a CPCU, is the owner of City Insurance Brokers. When one of her personal lines carriers, ABC Insurance, cancels Margaret's agency contract due to lack of sales volume, Margaret is faced with replacing the few clients she had insured with ABC with another carrier. She discovers she can find competitive quotes for most of these clients with other insurers that she represents. However, in the case of three customers, replacing their coverage will result in premium increases of several hundred dollars. Margaret knows that another brokerage in town, West End Insurance, has placed a significant volume of business with ABC Insurance. Which one of the following should Margaret do to comply with the CPCU Code of Professional Conduct?

 

Select one:

A. Provide her best quote and tell the clients to go to West End if they wish to stay insured with ABC.

B. Replace the three clients' coverage at the higher premium and say nothing.

C. Tell the three clients that she is unable to replace their coverage with any of her other carriers.

D. Provide her best quote and advise the three clients that ABC no longer writes in the area.

 

 

Question 28

 

Matt, a CPCU, is an automobile claims adjuster with ABC Insurance. He is assigned a claim involving Ted, an ABC insured, and Marina, a third-party claimant. Ted had not seen a stop sign and hit Marina's car broad-side in the middle of the intersection. There was damage to both vehicles and although Ted was not injured, Marina suffered soft tissue injuries to her neck and back and will be off work for an estimated twelve weeks. Which one of the following should Matt do to comply with the CPCU Code of Professional Conduct?

 

Select one:

A. Attempt to settle both parties' claims for as little as possible in order to save ABC money.

B. Ensure that both Ted's and Marina's claims are settled promptly, equitably, and fairly.

C. Settle both parties' claims, but give Ted preferential treatment as he is ABC's customer.

D. Settle both parties' claims but give preferential treatment to Marina because she is the victim in this case.

 

 

Question 29

 

Lloyd is a commercial property underwriter at Insurance Company (IC). Two years ago, he completed his studies and obtained the CPCU designation. Due to recent changes in workers compensation legislation in one of the states in which IC operates, the insurer has arranged for a one-day seminar to explain the changes and the impact they will have on underwriting and claim settlement. Considering Lloyd's obligations under the Code of Professional Conduct (the Code), which one of the following statements is correct?

 

Select one:

A. Because Lloyd has his CPCU, further training is considered unnecessary.

B. Lloyd is required to complete any training made available by his employer.

C. Because the seminar is not directly related to Lloyd's job, he is not obliged to attend.

D. The Code requires Lloyd to remain current on all changes in insurance legislation.

 

 

Question 30

 

Merve is a reinsurance professional who just received her CPCU designation. Merve is thrilled with what she learned and is grateful that the years of study and testing are over. She just received a notice of a local reinsurance seminar sponsored by the Reinsurance Section of the CPCU Society. To best comply with the CPCU Code of Professional Conduct concerning professional knowledge, Merve should

Select one:

A. Determine if her state requires continuing education.

B. Relax and enjoy the status the CPCU indicates.

C. Attend the local CPCU Chapter meetings.

D. Attend the reinsurance seminar.

 

 

Question 31

 

Julio, a CPCU, is an auditor for a reinsurer. During a claims audit of a reinsured, Julio detects violations of the reinsured's underwriting guidelines by its underwriters. Which one of the following would be Julio's best choice for his audit report?

Select one:

A. Identify the potential problem to the underwriter

B. Report the violations to his employer but not to the reinsured

C. Ignore the potential violations in the report as they are not related to claims

D. File a specific report on the potential violations with the appropriate parties

 

 

Question 32

 

Kenta, a CPCU, was involved in a non-insurance transaction he believed was legal, but resulted in his conviction for a "third degree" felony. Which one of the following best describes the application of the Code of Professional Conduct canon concerning laws and regulations and its rules to Kenta's situation?

Select one:

A. Kenta's CPCU designation is automatically suspended upon notice of the conviction to the American Institute for CPCU.

B. Because the crime was not insurance related, the canon has no application.

C. The rules as written dictate immediate suspension.

D. The rule prohibiting misrepresentation or concealment is applicable.

 

 

Question 33

 

Wallace is an insurance company executive and a CPCU. He is also an active member of a political party. When that party comes to power in Wallace's home state, he is appointed to serve on the state's insurance commission. He resigns his position with the insurance company and accepts the insurance commission appointment. Which one of the following statements best describes how Canon 4 of the Code of Professional Ethics regarding improving insurance mechanisms applies to this situation?

 

Select one:

A. Wallace is in compliance with Canon 4 as long as he avoids any action that may lead to the appearance of a conflict of interest.

B. Wallace is complying with Canon 4 by accepting a position that will allow him to improve the insurance mechanism.

C. Wallace is in violation of Canon 4, which prohibits CPCUs from serving in the public sector.

D. Wallace is not in compliance with Canon 4 because he has accepted a political appointment, which provides for personal gain at the expense of the public.

 

 

Question 34

 

Hans is a commercial lines producer at ABC Insurance Brokerage and a CPCU. When he was hired, Hans signed a non-competition agreement. Under the terms of the agreement, if Hans voluntarily leaves his employment he cannot work for another brokerage in the same city for a period of two years. Hans resigns to accept a position with a competing brokerage just down the street from ABC. The owner of ABC Insurance Brokerage contacts the Board of Ethical Inquiry (BEI) to lodge a complaint against Hans under Canon 4 of the Code of Professional ethics, alleging that the breach of contract is proof of professional incompetence. Which one of the following best describes how the BEI would respond?

 

Select one:

A. The BEI would involve itself in the situation only if either Hans or ABC initiated a civil lawsuit to resolve the issue.

B. The BEI would not intervene or arbitrate between Hans and ABC Insurance Brokerage because the issue involves a contractual matter.

C. The BEI would suspend Hans' CPCU designation until he complies with his contractual obligations under the non-competition agreement.

D. The BEI would instruct Hans to abide by his contractual obligations and resign from the new brokerage.

 

 

Question 35

 

Fatima, a CPCU, manages a number of personal lines underwriters. She has one underwriter who does an excellent job, but shows no interest in seeking a promotion that would require greater knowledge and skills. As a CPCU, Fatima's best choice to comply with Rule 5.1 of the Code of Professional Conduct related to helping others improve professional competence would be to

Select one:

A. Encourage the underwriter to increase his or her knowledge and skills so the same result can be applied to more difficult risks.

B. Give the underwriter a warning that he or she must seek a promotion and take advanced training.

C. Leave the underwriter alone as his or her work is excellent and a credit to the insurance business.

D. Provide her human resources department with a report on the underwriter seeking its advice on how to treat the problem.

 

 

 

Question 36

 

CPCU Joshua is an underwriter in a branch office. He learns that a tort reform bill has been introduced into his state legislature that would assist insureds by lowering their premiums and, therefore, hurt his agents' commission income. To best comply with Rule 5.2 of the Code of Professional Conduct related to promoting benefits to the public, Joshua should

Select one:

A. Take no action as he is not a registered lobbyist.

B. Explain the benefits of the bill to the agents with whom he deals and encourage passage of the bill.

C. Request permission from management to write a letter to the editor in support of the bill.

D. Encourage agents to support the bill despite the negative effect to agents.

 

 

Question 37

 

Elin is a surety producer and a CPCU. She regularly deals with legal and accounting information. She notices that certain financial information provided by a contractor shows a deteriorating financial position. To best comply with Rule 6.1 of the Code of Professional Conduct as it concerns confidential information needed by a professional, Elin should

Select one:

A. Suggest that a competing contractor consider merging with the client.

B. Do nothing as the information is proprietary.

C. Report the newest financial information to the surety.

D. Counsel the client as to methods to improve the financial position.

 

 

Question 38

 

Jose, a CPCU and producer, is an expert in insuring major contractors and developers. One of his clients is negotiating a complex development involving a general contractor and a local governmental unit in a neighboring state. The client asks Jose about a hold harmless agreement provision and the effects of the provision on the liability of the client. To best comply with Rule 6.2 of the Code of Professional Conduct concerning knowing the legal limitations of one's profession, Jose should

Select one:

A. Call the underwriter on the account for his or her opinion on the liability.

B. Explain the potential liability to the best of his ability.

C. Recommend the client ask an attorney licensed in the neighboring state.

D. Call an adjuster in the neighboring state for his or her opinion on the liability.

 

 

Question 39

 

Hugo is a CPCU and resident vice president and regional manager of an insurance company. The state legislature is considering a bill that would alter auto coverages and require insurers to reduce rates by 25 percent. Hugo is invited to be part of a roundtable discussion on the legislation by the state public broadcasting affiliate. To best comply with Canon 7 of the Code of Professional Conduct as it relates to helping to improve the public understanding of insurance, Hugo should

Select one:

A. Present his opinion on the legislation clearly noting it is his opinion and may or may not be the position of his company.

B. Obtain and present the position of the insurance trade association to which his employer belongs.

C. Seek permission from his employer to present the position of his company.

D. Present objective information on the pros and cons of the legislation without taking a position.

 

 

Question 40

 

Milton is a commercial lines producer and a CPCU. While visiting a prospect to discuss the company's insurance program, Milton inquires about the prospect's risk management program. The prospective client indicates that the company has no formal risk management program in place. Milton takes the time to explain some of the limitations of insurance, and the importance of risk management to any company. He provides examples of risk management techniques the company could employ, and highlights the benefits in terms of coverage and premium savings that the prospect could enjoy if an appropriate risk management and alternative risk financing program were implemented. He also provides the prospect with the name and telephone number of a respected risk management consultant in the area. Which one of the following best describes the application of Canon 7 of the Code of Professional Conduct as it concerns improving the public understanding of insurance and risk management?

 

Select one:

A. Milton is in contravention of Canon 7 because he is promoting risk management rather than insurance.

B. Milton is in contravention of Canon 7 because he discusses the limitations of insurance with a member of the public.

C. Milton is in compliance with Canon 7 because he is informing the prospect and is not speaking outside his area of expertise.

D. Milton is in compliance because Canon 7 specifically requires CPCUs to promote loss control.

 

 

 

Question 41

 

Jaimie is a marketing representative with ABC Insurance and a CPCU. ABC has a company policy of actively encouraging all of its employees to obtain professional designations and it has a high percentage of CPCUs among its professional staff. Jaimie has been given the responsibility of establishing agency contracts with ten new brokerages in an area of the state in which ABC is not currently writing business. Unfortunately, ABC's rates in the area are not particularly competitive and brokerage owners have been asking Jaimie why they should take on another carrier with rates similar to those of the insurers they already represent. Jaimie's response is that because ABC has a high percentage of CPCUs among its staff, the company will obviously be able to provide much more knowledgeable service than its competitors. Which one of the following statements best describes how Canon 8 of the Code of Professional Conduct regarding use of the CPCU designation would apply in this situation?

 

Select one:

A. Jaimie is in compliance with Canon 8 because he is maintaining the dignity and integrity of the CPCU designation.

B. Jaimie is in violation of Canon 8 because he is revealing information about the number of CPCUs in ABC's employ.

C. Jaimie is in compliance with Canon 8 because he is explaining the direct benefits of the designation to the brokerages.

D. Jaimie is in violation of Canon 8 because he is making unfair comparisons between CPCUs and those without the designation.

 

 

Question 42

 

CPCU Emil and a group of other CPCUs are forming a risk management consulting company. As hiring criteria they will only consider CPCUs for those who will consult. Emil's group believes they should emphasize this to potential clients. The group's best choice would be to

Select one:

A. Use the CPCU key as a watermark on stationary and business cards.

B. Use the letters CPCU as part of its corporate name.

C. Use the letters CPCU after the names of consultants on company letterhead and advertisements.

D. Obtain special license plates such as "RM CPCU 1" for company cars.

 

 

Question 43

 

As a CPCU, Antonia has been asked to recommend an agency owner for the CPCU program. In the past, Antonia noticed that the prospective candidate financed insurance premium in a way that Antonia believes is unethical. In keeping with the Code of Professional Conduct, Antonia's best action regarding this requested recommendation would be to

Select one:

A. Write the recommendation in the hope the candidate will improve his or her ethics.

B. Discuss her dilemma with another CPCU.

C. Not support the candidate for the CPCU designation.

D. Support the candidate with reservations.

 

 

Question 44

 

Vaughn is a commercial lines underwriter and a CPCU. Vaughn discovers that a co-worker and CPCU, Jennifer, has been accepting expensive gifts from several brokers in exchange for writing marginal accounts at preferred rates. When he asks her about it, Jennifer confirms that she has been doing so, but justifies it by saying that she has done the same thing for years, and only a few of those accounts have developed a poor loss ratio. Vaughn brings the matter to the attention of the underwriting manager, who investigates and ultimately fires Jennifer. She also reports Jennifer to the Board of Ethical Inquiry (BEI). The BEI elects to investigate the case. Under the circumstances, which one of the following best describes Vaughn's responsibilities under Canon 9 of the Code of Professional Conduct regarding integrity of the Code?

Select one:

A. Vaughn reported the situation to his boss; he has no further obligations under Canon 9.

B. Vaughn is obliged to contact the BEI and volunteer to testify at any hearing.

C. Vaughn is obliged to keep any information he has about Jennifer confidential.

D. Vaughn is obliged to reveal what he knows to the BEI upon request.

 

 

Question 45

 

Cindy is an applicant for the CPCU program. Cindy recently committed and was convicted of a felony. Which one of the following statements is true?

Select one:

A. Cindy is banned for life from pursuing the CPCU designation.

B. Cindy can still pursue the CPCU designation upon recommendation by a parole officer.

C. There is a process whereby Cindy, if deemed to be fully rehabilitated, may still pursue the CPCU designation.

D. There is a two-year waiting period before Cindy's CPCU studies can be pursued again.

 

 

Question 46

 

An insurance customer has alleged that Jake, who is a producer and a CPCU, has violated the Code of Professional Conduct. As a CPCU who is subject to a formal disciplinary proceeding before a Hearing Panel of the Board of Ethical Inquiry, Jake is entitled

Select one:

A. To a hearing before a jury of his or her professional peers.

B. To a hearing before the local court of common pleas.

C. To be heard in person and be represented by counsel.

D. To the same due process rights as a criminal defendant.

 

 

Question 47

 

Lenny, a CPCU, owns one of the few insurance brokerages in his region, and he is very active in party politics. He has an opening for an underwriter trainee. Sarah, a recent college graduate who majored in insurance, is the most qualified applicant and would do the best job for his clients. Sarah, however, is also active in politics and campaigns for the opposing party. Lenny feels that he can put politics aside to establish a good working relationship with Sarah, but he does not like the idea of hiring someone from the other party. He also knows that if he does not hire Sarah she will not be able to find employment in insurance locally. Which one of the following statements is true regarding Lenny's dilemma?

Select one:

A. If Lenny considers how employing Sarah would be perceived by his political party, a stakeholder group, he should err on the side of caution and not hire her.

B. If Lenny applies the CPCU Code of Professional Conduct, he will find that supporting the public interest above his own means he should hire Sarah and treat her fairly.

C. If Lenny uses a flowchart to resolve his dilemma, he will find that the ethical issue raised is not his to resolve.

D. If Lenny resorts to an ethical decision-making checklist, he will find that his own intentions are irrelevant.

 

 

Question 48

 

George is a CPCU who owns a commercial insurance agency. George met with Horace, the owner of a growing local company that is seeking to move all of its coverages and had asked George for quotes. Horace mentioned to George that Horace was the chairperson of a charitable fund drive, and a $20,000 donation from George's agency "would go a long way toward helping me to assess my company's insurance situation." George understands this statement to mean that if he makes the donation, Horace will buy his insurance from George.

 

George feels Horace's remark is akin to a bribe, but he would very much like to get Horace's business and the charity is a good one. George wonders whether he has an ethical dilemma. George should consider

 

Select one:

A. That what Horace proposes might be the custom in Horace's industry and therefore ethically acceptable.

B. That he offers good insurance products at good prices such that no one would be cheated.

C. Whether making the donation creates the appearance of impropriety.

D. That making the donation creates a winning situation for all of the stakeholders in the scenario.

 

 

Question 49

 

Blain is a CPCU who owns a large insurance agency. He is very proud of his CPCU designation and the number of his employees who are also CPCUs. He will not hire a new employee who is not a CPCU.

 

At a staff meeting, one of Blain's agents suggested that the firm have lapel buttons created for its employees with "CPCU SPOKEN HERE" printed on them. Half the staff thought it was a good idea, and the other half thought there may be something improper about such use of "CPCU." Blain was not sure what to think.

Which one of the following statements is true?

Select one:

 

A. Blain should take a vote among his staff members to determine whether to proceed with creating the buttons.

B. Blain should proceed with the button idea but the buttons should only be worn from holders of the CPCU designation.

C. Blain should satisfy himself that the buttons would appear dignified and professional and then proceed to order them.

D. Blain should seek express permission from the American Institute for the contemplated use of "CPCU."

 

 

Question 50

 

The local CPCU Society chapter plans to sponsor a high school essay contest on "The Role of Insurance in Society." The winners will receive awards that look like football trophies, except instead of a football on top, there will be a large key imprinted with "CPCU." Which one of the following statements is true?

 

Select one:

A. The organizers may proceed as long as the initials "CPCU" are no taller than one and one-quarter inch.

B. The organizers should make their own determination as to whether the contemplated use of "CPCU" is dignified and professional.

C. The organizers should have no concerns over their intended use of "CPCU" since a trophy does not constitute jewelry.

D. The organizers must first obtain explicit permission from the American Institute for the contemplated use of "CPCU

 

 

 

Question 51

 

Anil is a new customer service representative in a busy insurance company sales department. In training, he is finding that his employer greatly values acting professionally at all times. Anil should learn that

 

Select one:

A. Ethical insurance professionals need not concern themselves with laws and regulations.

B. Ethical behavior requires sacrificing one's own values for the good of the consuming public and society as a whole.

C. Business ethics entail doing what is right in the context of products and services and relationships with stakeholders.

D. Governmental entities cannot encourage moral behavior or discourage immoral actions.

 

 

Question 52

 

The underwriters of Good Insurance Services know the importance of moral conduct in their professional endeavors. Moral conduct implies behavior based on which one of the following?

 

Select one:

A. Codes and regulations

B. Order

C. Virtue

D. Legal tenets

 

Question 53

 

Sadie, a new claims adjuster, was on the job just two months when she recognized an ethical issue. She knew from her training that ethics concern making often difficult decisions

 

Select one:

A. Based on professional standards.

B. Between right and wrong.

C. Between two or more right answers.

D. Based on legal obligations.

 

 

Question 54

 

A successful insurance practitioner must exhibit professionalism because of which one of the following public needs?

 

Select one:

A. A high level of trust

B. A high level of need for insurance

C. A high level of regulation of the business

D. A high level of insurance product knowledge

 

 

Question 55

 

Which one of the following statements is correct?

 

Select one:

A. An insurance professional should avoid being overly candid with insureds and claimants.

B. A standard of "utmost good faith" exists for many practitioners who work on behalf of insurers.

C. High ethical standards are not required in all professions.

D. In insurance, high ethical standards are only required of insurers.

 

 

Question 56

 

Melanie is an Insurance Company employee who has been assigned a mentor, Sal. In his explanation to her about professionalism, Sal should include that

 

Select one:

A. Support of family, friends, and colleagues is irrelevant to achieving the status of a professional in the insurance industry.

B. Unfortunately, practitioners committed to professionalism often have difficulty adapting to changes in the global marketplace.

C. Aspiring to be a professional need not require much personal sacrifice or time away from family or recreational pursuits.

D. Continuous pursuit of knowledge, utmost good faith in all dealings, and adherence to standards and regulations all contribute to professionalism.

 

Question 57

 

Which one of the following statements is correct?

Select one:

A. Insurance professionals fulfilled their social responsibility by developing no-fault workers compensation to assist injured workers and reduce the exposure of the employer.

B. Before there was no-fault workers compensation, a worker was not able to sue an employer in tort when an employer negligently injured the worker.

C. Workers compensation is a system where groups of workers take care of injured fellow workers because there is no insurance system in place to compensate injured workers.

D. Workers compensation insurance benefits employers and injured employees but cannot benefit society as a whole.

 

Question 58

 

Which one of the following statements is correct?

Select one:

A. The National Association of Insurance Commissioners (NAIC) regulates insurance activities in all states.

B. Regulators cannot mandate specific training or continuing education requirements for insurance professionals to maintain their licenses.

C. Failing to abide by regulatory requirements can lead to allegations of errors and omissions, or even bad faith.

D. The punishment for insurance professionals found to be noncompliant with insurance regulation is limited to fines.

 

Question 59

 

Sandi is the compliance officer for a medium-sized insurer and is thus very interested in the practice of professional ethics within her company. She knows that

Select one:

A. Organizations that concern themselves with ethics generally have less time to focus their attention on their core business goals.

B. Organizations that demonstrate high ethical standards can find it difficult to recruit and retain employees.

C. Ethical organizations avoid legal issues because their activities comply with applicable laws and regulations.

D. The result of maintaining high ethical standards from an economical standpoint is an increase in operational expenses.

 

Question 60

 

Oliver is a reinsurance intermediary placing reinsurance for a variety of insurers with a variety of reinsurers. He has no contact with the public or policyholders of the insurers for which he places reinsurance. In this position, Oliver's duties are best characterized by which one of the following?

 

Select one:

A. Oliver still has significant duties to the public and primary insurer policyholders.

B. Oliver only owes his duties to the insurers for which he places business and the reinsurers.

C. Oliver only owes his duties to the insurers for which he places business.

D. Oliver owes his primary duties to the insurance regulators overseeing reinsurance.

 

Question 61

 

Bernice is a claim adjuster with Insurance Company (IC). She has been assigned a liability claim against IC's policyholder, Garth. The claimant, Calvin, alleges that while at a party hosted by Garth, he became uncharacteristically intoxicated due to the strength of the drinks Garth was mixing and serving. As a result of his intoxication, he fell down the stairs at Garth's house, breaking his back. The injury has left Calvin paraplegic. In Bernice's opinion, Garth is fully liable under state law for Calvin's disability. Which one of the following statements best describes Bernice's responsibilities in this situation?

 

Select one:

A. She should consider the case from the perspective of IC, which wants the claim resolved for the least amount possible.

B. She should consider and evaluate Calvin's pain and suffering, and make a fair offer in settlement of the loss.

C. She should pay Calvin enough to prevent him from filing suit and causing the insurer to incur extensive legal expenses.

D. She should discuss the claim with Garth and determine how he would like to see it handled in terms of settling or going to court.

 

 

Question 62

 

Which one of the following statements is correct?

Select one:

 

A. Underwriters must balance the customer's need for a fair price and comprehensive coverage with the insurer's profit goals.

B. Insurance professionals have a responsibility to insure any and all risks, regardless of the effect this has on insurer profitability.

C. Claim representatives should carefully determine the value of each claim and never pay insureds or claimants more than that value.

D. Agents are paid on a commission basis because their responsibility to insurers is to sell as many policies as possible.

 

 

Question 63

 

Anil is a commercial insurance producer who specializes in large, complex accounts. Anil is approached by the risk manager from Altor Systems, a company that specializes in developing special-purpose computer operating systems for use in such things as communications satellites, space vehicles, and military applications. Because of the nature of its business, Altor often finds it difficult to obtain insurance coverage, much less to obtain it at a cost the company sees as reasonable. Based on his experience, Anil is aware of two companies that might provide coverage for Altor. One, licensed in the client's home state, has very stringent underwriting guidelines and relatively high premiums. The second is a nonadmitted insurer, not licensed in the client's home state. This second insurer has much more flexible underwriting guidelines, and Anil is certain that the premiums charged would be much lower, as would be the commission Anil would earn on the account. After examining stakeholders, and motivations, which one of the following should be Anil's next course of action?

 

Select one:

A. To examine his own feelings about the case

B. To consider how his colleagues might handle the situation

C. To examine any laws, regulations, and guidelines governing the situation

D. To recommend that his client deal with the non-admitted insurer

 

 

Question 64

 

Joseph is struggling with an ethical dilemma. He does not have a firm handle on what he should do. During a recent continuing education class, Joseph was introduced to the concepts of a systematic approach to resolving ethical dilemmas. Following the process, he has identified the stakeholders and the motivations of those involved. To complete the systematic approach and come to a conclusion Joseph should now

 

Select one:

A. Consider only objective information.

B. Identify the relevant ethical issues.

C. Separate facts from feelings.

D. Identify the rights of the stakeholders.

 

 

Question 65

 

The commercial property underwriting guidelines at Commercial Insurance Ltd. (CIL) state that rooming houses with more than six rooms for rent are not acceptable for insurance. Lachlan, an agent, has a client that is a nonprofit corporation providing affordable housing and social services to low-income people. It is partially funded through proceeds from thrift stores that it owns. It presently insures four apartment buildings, a fleet of automobiles, and six retail outlets with CIL.

 

The client has purchased two rooming houses and requests commercial property coverage for both of them. One rooming house has six rooms to rent and one has eight rooms to rent. Because of the charitable purposes of the client, Lachlan feels the insurer should provide coverage for both rooming houses. This is an example of which one of the following ethical dilemmas?

 

Select one:

A. Long-term versus short-term

B. Truth versus loyalty

C. Justice versus mercy

D. Individual versus community

 

Question 66

 

Erma travels on company business frequently. Her travel expenses are paid by the company but she must fill out an expense sheet to be reimbursed for her meals. Knowing that receipts are not required for meals that cost up to $25, Erma submits false expense statements for $25 whenever her hotel has free breakfasts. This falsification and padding of expenses is an example of wrongly applied

 

Select one:

A. Situation-based ethical decision making.

B. Altruism-based ethical decision making.

C. Function-based ethical decision making.

D. Rules-based ethical decision making.

 

 

Question 67

 

Insurance Company (IC) provides company cars to claim managers who have metropolitan territories. The company's written policy is to use these vehicles only for business and there is a strict prohibition against having passengers for any reason whatsoever.

 

Claim manager Barb recently gave birth to a son. She would like to stop by her son's daycare center to pick him up daily. This would take her only five miles a day out of her way and this helps Barb save time and use of her own car. Barb rationalizes that the side trip actually benefits IC because it allows her to spend less time switching vehicles and more time at work and it allows Barb to be more focused on her claim files. Which one of the following statements is correct?

 

Select one:

A. From a rules-based decision analysis, the equities rule in favor of Barb using her company car to pick up her son from daycare.

B. Rules-based decision making always places people and situations first and it would justify a decision by Barb to use her company car to pick up her son from the daycare center.

C. Rules-based decision making recognizes that one rule does not fit all circumstances and would justify Barb's plans to use her company car to pick up her son from the daycare center.

D. From a rules-based decision analysis, it would be unethical for Barb to use her company car to pick up her son from daycare.

 

 

Question 68

 

Joshua is insured with InsureCo through its agent, Olivia. He has an automobile and a commercial property policy with InsureCo. Joshua's son Harry, who lives at home, is driving the insured vehicle. He loses control and hits a guardrail causing $4,500 damage to the vehicle. Joshua asks Olivia for advice. Olivia knows that InsureCo's guidelines state that one at-fault accident, whether a claim is paid or not, results in an automatic premium increase of twenty-five percent. If Joshua pays for the damage himself the insurer may never know about the accident.

 

Olivia's decision is to advise InsureCo of the accident. Which one of the following decision-making tools is Olivia most likely using when she makes her decision?

Select one:

A. Situation-based decision making

B. Ethics-based decision making

C. Rules-based decision making

D. People-based decision making

 

 

Question 69

 

Caroline is an underwriting supervisor with Durham Insurance. She has been advised of an anonymous reporting of unethical behavior by one of her underwriters. She is anxious about the dilemma, and decides to use the checklist method to help her resolve it. Caroline has gathered information on the ethical problem, determined how it arose, and identified the various stakeholders involved. Which one of the following should be her next step in the process?

 

Select one:

A. Evaluate the dilemma from the situation-based prospective

B. Determine who is responsible for resolving the conflict

C. Look for an applicable code or standard

D. Consider whether there is a duty or loyalty to uphold

 

 

Question 70

 

When faced with an ethical dilemma, an insurance professional can often look to the organization's code of ethics as a guide. Which one of the following features of the code of ethics can be particularly helpful in the decision-making process?

 

Select one:

A. The published documentation of the organization's principles

B. The shared responsibility of all stakeholders

C. The use of examples of situations and possible resolutions

D. The incorporation of people-based decision making

 

 

Question 71

 

Ariel is facing an ethical dilemma at work and is using a checklist for ethical decision making to help resolve it. At the end of his experience, he should

 

Select one:

A. Find that some problems cannot be solved.

B. Find that there is a rule for everything.

C. Avoid making a hard decision.

D. Internalize everything learned.

 

Question 72

 

Under which one of the following circumstances can physical barriers to ethical decision making prevent an insurance professional from reaching an ethical decision?

Select one:

A. When key documentation is missing or destroyed

B. When tools or processes for making ethical decisions are not known

C. When internal and external pressures prevent insurance professionals from following codes of conduct

D. When the processes are complicated and procedures are cumbersome

 

 

Question 73

 

The primary reason for the creation of federal whistle-blower statutes was to

Select one:

A. Facilitate and reward the reporting of unethical behavior.

B. Protect individuals who report unethical activities.

C. Create a fail-safe mechanism for reporting unethical behavior.

D. Provide anonymity for individuals wishing to report unethical behavior.

 

 

Question 74

 

Mark is faced with making an ethical decision regarding an application he has received from a producer. Mark fears that if he were to take an ethical position on the application, he might lose his job. Which one of the following is true regarding this situation?

Select one:

A. Regardless of the decision made, Mark's job is protected by the whistle-blower provision of the Sarbanes-Oxley Act and therefore he does not need to fear loss of his job.

B. A code of ethics would not likely help Mark make a decision or know if his decision was supported by the company because hiring and firing are legal considerations that are not addressed by codes of ethics.

C. Mark is facing an administrative barrier that will not allow him to gather the necessary information to make his decision.

D. Mark is facing a physical barrier that, if unresolved, might prevent him from making the best decision from an ethical standpoint.

 

Question 75

 

The CPCU Code of Professional Conduct includes

Select one:

A. Disciplinary Procedures, Canons, and Rules.

B. Canons, Rules, and Advisory Opinions.

C. Rules, Advisory Opinions, and Disciplinary Rules.

D. Advisory Opinions, Disciplinary Penalties, and Canons.

 

 

 

Question 76

 

Michael, CEO of a managing general agency, established a policy requiring all employees to read, understand, agree to, and abide by the Code of Professional Ethics—Ethical Guidelines for Insurance Professionals. He has made this policy known to retail agents and attorneys with whom he deals. The canon most supported by Michael's establishment of this policy is

 

Select one:

A. CPCUs should Endeavor at all times to place the public interest above their own.

B. CPCUs should Seek continually to maintain and improve their professional knowledge, skills, and competencies.

C. CPCUs should Strive to establish and maintain dignified and honorable relationships with those whom they serve.

D. CPCUs should Aspire to raise the professional and ethical standards in the insurance business.

 

 

 

Question 77

 

Joyce is a CPCU and a senior claim adjuster with Insurance Company. Because of her experience, she tends to be assigned larger, more complex claims. Her supervisor assigns her a loss involving an explosion and building fire at a hardware store. The supervisor explains that the fire spread to two neighboring buildings, and toxic fumes from burning paints, solvents, and varnishes required the evacuation of several other buildings in the area. A number of employees and passers-by were injured either directly by the explosion or indirectly by the toxic fumes. The claim will involve first-party fire and water damage, third-party liability, and a business income loss. This is the type of claim that Joyce particularly enjoys resolving. When she opens the file she realizes that the store is owned by her father-in-law. Which one of the following should Joyce do to comply with the CPCU Code of Professional Conduct?

 

Select one:

A. Say nothing to her supervisor and adjust the claim generously in her father-in-law's favor.

B. Advise her supervisor of her relationship with the policyholder and promise to adjust the claim objectively.

C. Tell her supervisor that the policyholder is a relative and ask that the claim be reassigned.

D. Say nothing to her supervisor and adjust the claim to the best of her ability.

 

 

Question 78

 

Rodrigo is the chief investment officer for an insurer. He has four investment firms vying for company business. Each has offered various inducements ranging from use of a skybox at sporting events to negotiated buy/sell transactions costs. To best comply with the CPCU Code of Professional Conduct, Rodrigo should pick the investment firm that offers the

 

Select one:

A. Lowest transactions costs.

B. Skybox at sporting events.

C. Quickest buy/sell confirmations.

D. Best combination of price and services needed by the insurer.

 

 

Question 79

 

Miguel is a CPCU. His office associate inquires about the requirements of the CPCU designation. Miguel explains the procedures for obtaining the designation and begins to explain the requirements for keeping the designation. Which one of the following would be the best explanation of the canon related to improving knowledge and skills and its associated rule?

 

Select one:

A. Continuing education is a minimum obligation of a CPCU.

B. Continuing professional education is dependent on state law or regulation.

C. Continuing professional education is a minimum obligation of a CPCU.

D. Continuing education is desirable to expand knowledge beyond insurance.

 

Question 80

 

A local university invites Mathilde, a CPCU, to be on a panel discussing various codes of ethics. The panel is asked to explain why continuing education is required in their professions. Mathilde's best explanation of the continuing education requirement of the CPCU designation would be

 

Select one:

A. Continuing education may be required by law and professionals always comply with laws.

B. Professional associations, such as the CPCU Society, require continuing education for membership.

C. Education is directly related to professional competence.

D. Professional ethics require that a professional maintain competence in a complex, rapidly changing environment.

 

Question 81

 

Felicia is a commercial lines underwriter and a CPCU. One of the brokers that she underwrites comes into the office one day to discuss a potential account submission. The account is a golf course that includes a hotel and conference center. The account appears to be a good one - well managed and maintained. Unfortunately, the loss frequency on the account has been much higher than average over the past several years. The broker badly wants to write the account and is asking Felicia to provide a competitive quote despite the loss frequency, which the broker assures her will not continue. The broker offers to buy a membership to the golf course for Felicia so that she can visit the course regularly and "keep an eye on" the account. Which one of the following statements best describes how Felicia should handle the situation in order to comply with Canon 3 of the Code of Professional Conduct concerning laws, regulations, and unjust harm?

 

Select one:

A. Felicia could accept the golf course membership provided she ask another underwriter to review the account.

B. Felicia should decline the golf course membership and underwrite and price the account based on its own merits.

C. Felicia should decline to accept the golf course membership and refuse to write the account.

D. Felicia should accept the golf course membership if she elects to write the coverage so that she can "keep an eye on" the account.

 

Question 82

 

CPCU Ida's agency is very close to qualifying for a European trip that is an insurance company sales incentive but only has one month to qualify. As sales manager, Ida would be awarded the trip. To best comply with Rule 3.2 of the

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