Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What is an agency agreement in insurance?

1. A contract between the insurer and the brokerage

2. A legal document outlining client obligations

3. A policy document that details coverage

4. An agreement between clients and brokers

The correct answer is: A contract between the insurer and the brokerage

An agency agreement in insurance refers to a contract between the insurer and the brokerage. This document establishes the relationship between the two parties, delineating the roles and responsibilities of the brokerage as an intermediary between clients and the insurer. It outlines the authority of the brokerage in terms of representing the insurer, selling policies, and servicing clients. This agreement is crucial for ensuring that both parties understand their rights and obligations, which helps in maintaining compliance with regulations and industry standards. The other options do not accurately capture the essence of an agency agreement. A legal document outlining client obligations would pertain more to insurance policies or contracts between brokers and their clients rather than the relationships established within the industry itself. A policy document that details coverage serves to inform clients about their insurance protections but is not relevant to the agency relationship. An agreement between clients and brokers would speak more to the terms under which a broker works with a client, but it does not reflect the direct contractual arrangement between a broker and the insurer, which is fundamental to understanding an agency agreement.