Insurance Broker Certification Practice Exam

What is a key feature of the independent agency system?

1. Agents must be employees of a single insurer

2. Commissions are only for renewals

3. It allows for nonexclusive representation

4. All policies must be handled by subagents

The correct answer is: It allows for nonexclusive representation

A key feature of the independent agency system is its nonexclusive representation of multiple insurance carriers. This structure allows independent agents the flexibility to sell policies from various insurers, thereby offering clients a broader range of products and options tailored to their specific insurance needs. This versatility is essential in fostering competition among different insurers, as agents can compare policies, coverage, and prices. Independent agents serve as brokers who advocate for their clients and can provide unbiased advice about the best insurance solutions available, as they are not tied to representing just one company. In contrast, the other choices do not accurately reflect the independent agency system. For instance, agents in this system are not required to be employees of a single insurer; instead, they maintain their independence. Additionally, commissions in an independent agency system are typically not limited to renewals but can encompass new business sales as well. Finally, handling of policies by subagents is not a requirement and generally is not a feature associated with independent agents. This further emphasizes the independent agent's role as a primary representative of numerous insurers, rather than being restricted by subagent requirements or commitments to a single insurance provider.