When insurers allow intermediaries to act on their behalf by taking on risks within defined limits and criteria, what is this known as?

When insurers allow intermediaries to act on their behalf by taking on risks within defined limits and criteria, what is this known as?

• A. Third party authority.
• B. Substituted authority.
• C. Substituted binders.
• D. Delegated authority.

Answer: (D)

The concept of insurers allowing intermediaries to act on their behalf by taking on risks within defined limits and criteria is known as delegated authority. This arrangement enables intermediaries, such as brokers or agents, to have the power to underwrite policies without requiring prior approval from the insurer for each individual risk. This delegation of authority streamlines the process, allowing for quicker decision-making and greater flexibility in managing insurance risks. In a delegated authority model, the insurer typically provides the intermediary with specific guidelines, including underwriting limits and the types of risks they are permitted to underwrite. This ensures that the insurer maintains some control over the types of risks being accepted while benefiting from the intermediary's expertise and local market knowledge. The other choices highlight various concepts that are related but do not accurately describe the arrangement in question. For instance, third party authority usually refers to the ability of an individual to act on behalf of another party in certain matters without any specifics on risk acceptance limits. Substituted authority and substituted binders may relate to specific contractual or procedural terms but do not capture the broader concept of empowering intermediaries to underwrite risks, as delegated authority does.

The concept of insurers allowing intermediaries to act on their behalf by taking on risks within defined limits and criteria is known as delegated authority. This arrangement enables intermediaries, such as brokers or agents, to have the power to underwrite policies without requiring prior approval from the insurer for each individual risk. This delegation of authority streamlines the process, allowing for quicker decision-making and greater flexibility in managing insurance risks.

In a delegated authority model, the insurer typically provides the intermediary with specific guidelines, including underwriting limits and the types of risks they are permitted to underwrite. This ensures that the insurer maintains some control over the types of risks being accepted while benefiting from the intermediary's expertise and local market knowledge.

The other choices highlight various concepts that are related but do not accurately describe the arrangement in question. For instance, third party authority usually refers to the ability of an individual to act on behalf of another party in certain matters without any specifics on risk acceptance limits. Substituted authority and substituted binders may relate to specific contractual or procedural terms but do not capture the broader concept of empowering intermediaries to underwrite risks, as delegated authority does.