PSI Ohio Insurance Practice Exam

Which of the following is an example of implied authority under the law of agency?

1. A producer can negotiate premium rates

2. A producer can issue new policies without insurer approval

3. A producer can perform reasonable duties necessary to act as a producer

4. A producer is required to have written authorization for all actions

The correct answer is: A producer can perform reasonable duties necessary to act as a producer

Implied authority refers to the powers that are not explicitly granted to an agent by a principal but are necessary for the agent to perform their duties effectively. In the context of an insurance producer, this type of authority allows them to do what is reasonably necessary to fulfill their role, even if those specific actions aren't explicitly outlined in a contract. When considering the duties of a producer, they may need to engage in various activities, such as meeting with clients, obtaining information, communicating with the insurer, or performing other actions that are common and accepted practices in the industry. These actions, while not specifically detailed in their agreement with the insurer, are considered essential duties that enable the producer to serve their clients effectively. The other options involve explicit actions that may not fall under implied authority. For example, the ability to negotiate premium rates and the power to issue new policies without approval would require explicit authorization from the insurer, as these actions directly impact the insurer’s financial interests and risk management. Likewise, requiring written authorization for all actions limits flexibility and would not align with the nature of implied authority, which allows for reasonable actions based on the agent's role.