Free AIC Level 2 Practice Questions: Ethics and Professionalism

Use this page to isolate Ethics and Professionalism before returning to mixed AIC General Insurance Level 2 practice.

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Sample questions

These are original Finance Prep practice questions aligned to this topic area. They are not official exam questions, copied live-exam content, or exam dumps. Use them for self-assessment, scope review, and deciding what to drill next.

Question 1

Topic: Ethics and Professionalism

A Level 2 broker receives a call from a long-time commercial client after a water damage claim. The insurer-appointed adjuster has requested invoices and photographs, but the client is frustrated and asks the broker to “tell the adjuster to approve the claim today.” The policy has a water-damage limitation that may affect part of the loss, and the broker has not yet reviewed the adjuster’s coverage position. What is the broker’s best action?

• A. Tell the client the claim is definitely excluded because the policy contains a water-damage limitation.
• B. Instruct the adjuster to approve the claim because the client bought the policy through the brokerage.
• C. Help the client gather and submit the requested documents, review the policy wording and adjuster’s position, and advocate for the client’s interests without promising coverage or settlement.
• D. Step away from the matter because only the insurer and adjuster may communicate with the client once a claim is opened.

Best answer: C

What this tests: Ethics and Professionalism

Explanation: A broker’s claims-advocacy role is to support the client through the process while staying within the broker’s authority. The broker can help the client understand what information is needed, submit documents promptly, review the policy wording, ask the adjuster for the coverage basis, and challenge or clarify positions that appear inconsistent with the policy facts. The broker should not guarantee payment, direct the adjuster to settle, or make a final coverage decision on behalf of the insurer. Good advocacy includes clear communication, file documentation, and escalation within the insurer when appropriate, while avoiding promises that could create an E&O exposure.

• Directing approval ignores the adjuster’s role and exceeds the broker’s authority.
• Declaring the claim excluded is premature because a limitation may affect only part of the loss and the facts have not been reviewed.
• Withdrawing from communication fails the client-service and advocacy role; the broker can remain involved without taking over claim settlement authority.

The broker should assist, explain, document, and advocate while respecting that the insurer and adjuster determine coverage and settlement.

Question 2

Topic: Ethics and Professionalism

A Level 2 broker completed an annual review for a homeowner whose finished basement now contains a home theatre and office equipment. The broker recommended increasing the sewer backup limit to $100,000 and adding the available water-damage extension. The client accepted in writing, and the broker sent the change request to the insurer within binding authority. When the renewal documents arrive, the declaration page still shows the old $25,000 sewer backup limit and no water-damage extension. The renewal effective date is next week.

What is the best service action?

• A. Send the renewal package to the client because the written request to the insurer is enough to prove the intended coverage if a loss occurs.
• B. Remarket the entire account immediately because any document mismatch means the insurer has declined the requested coverage.
• C. Wait until after renewal to see whether the insurer issues an endorsement, because the effective date has not yet passed.
• D. Contact the insurer immediately to correct or reissue the documents, advise the client of the discrepancy, and document the file until the correction is confirmed.

Best answer: D

What this tests: Ethics and Professionalism

Explanation: When insurer documents do not match coverage the client requested and the broker recommended, the broker should not treat the documents as a routine delivery issue. The declaration page and endorsements are the client’s evidence of coverage, so a mismatch must be addressed promptly. The proper service response is to contact the insurer for correction or clarification, advise the client that the documents do not yet reflect the requested coverage, and document all communications and follow-up. This protects the client from relying on inaccurate documents and reduces E&O risk for the brokerage. Remarketing may become appropriate if the insurer confirms it will not provide the coverage, but that is not the first conclusion from an apparent document error.

• Forwarding the renewal without action leaves the client with documents that do not show the requested protection.
• Waiting until after renewal risks an uninsured or underinsured loss during the gap.
• Remarketing may be needed if the insurer refuses the coverage, but the first step is to verify and correct the discrepancy.

The insurer documents conflict with the requested coverage, so the broker must promptly seek correction, keep the client informed, and preserve a clear file record.

Question 3

Topic: Ethics and Professionalism

A homeowners client tells a Level 2 broker during renewal review that she now rents her basement suite to an unrelated tenant. The tenant has asked whether the homeowner’s policy would cover the tenant’s furniture and electronics if there were a fire or sewer backup in the suite. What coverage limitation should the broker explain most clearly?

• A. The homeowner’s policy will cover the tenant’s property if the tenant is named in the lease and lives in the same building as the owner.
• B. The homeowner can solve the limitation by increasing the contents limit without notifying the insurer about the basement rental.
• C. The homeowner’s policy does not insure the tenant’s personal property; the tenant should arrange a tenant’s package policy, and the rental exposure should be disclosed to the insurer.
• D. The homeowner’s personal liability limit automatically extends to the tenant’s belongings because the loss would occur on the insured premises.

Best answer: C

What this tests: Ethics and Professionalism

Explanation: A homeowner’s policy is designed to insure the named insured’s dwelling, personal property, and personal liability, subject to the policy wording. It does not make an unrelated tenant’s property insured property merely because the tenant lives in part of the home. The tenant needs separate tenants insurance for personal property and personal liability. The broker should also recognize the rented basement suite as a material change in occupancy and use. That exposure should be disclosed to the insurer so the policy can be underwritten and endorsed or rewritten if needed. Clear communication protects the client from assuming coverage exists and reduces E&O risk for the broker.

• Naming the tenant in a lease does not make the tenant an insured under the homeowner’s contents coverage.
• Premises location does not convert the homeowner’s personal liability coverage into property insurance for the tenant’s belongings.
• Increasing the contents limit does not fix an uninsured ownership issue or the need to disclose the rental exposure.

The tenant’s belongings are not the homeowner’s insured property, and the new rental occupancy is a material exposure for underwriting.

Question 4

Topic: Ethics and Professionalism

A Level 2 broker reviews a renewal file for a small Alberta contractor. The contractor owns no vehicles, but employees regularly use their own vehicles for bank deposits and job-site visits. A file note from another broker says: “Your commercial general liability policy should respond if an employee causes an accident while driving for company business, so no separate auto coverage is needed. I will issue the certificate showing auto liability today.”

What is the most appropriate correction to that recommendation?

• A. Issue the certificate because the employees’ personal auto policies are the primary coverage for any business-use accident.
• B. Tell the contractor that the CGL will cover the loss only if the employee was not negligent in causing the accident.
• C. Add the employees’ vehicles to the contractor’s commercial property policy because the exposure arises from business operations.
• D. Explain that CGL does not replace non-owned automobile liability coverage, gather the vehicle-use details, and arrange or confirm SPF 6-type coverage before issuing any certificate.

Best answer: D

What this tests: Ethics and Professionalism

Explanation: A broker should not reassure a client that a policy covers an exposure when the wording is likely limited or excluded. CGL policies generally are not a substitute for automobile liability coverage. When employees use their own vehicles on company business, the employer may need non-owned automobile liability protection, commonly addressed through an SPF 6-type policy or equivalent arrangement. The broker should correct the file note, explain the coverage gap in plain language, collect the underwriting details, and confirm binding authority or insurer acceptance before issuing a certificate. A certificate should reflect coverage that is actually in force, not coverage the broker hopes to place.

• Relying only on employees’ personal auto policies ignores the employer’s possible non-owned automobile exposure and risks misrepresenting the contractor’s coverage.
• A commercial property policy does not address third-party automobile liability arising from employee vehicle use.
• Negligence is not the correction; the problem is that the CGL is not the proper coverage mechanism for this automobile exposure.

The prior advice overstates the CGL and should be corrected by explaining the auto limitation and securing appropriate non-owned automobile coverage before confirming it to others.

Question 5

Topic: Ethics and Professionalism

A Level 2 broker is reviewing a renewal for a small contractor. The client sends a new service contract from a property manager and asks the broker to “confirm we are covered so we can sign today.” The contract requires the contractor to assume broad indemnity obligations for damage arising from the property manager’s operations, add the property manager as an additional insured, waive subrogation, and provide evidence of pollution cleanup coverage. The broker has not seen wording in the client’s current CGL that clearly matches all of these requirements, and the client wants the broker to issue the certificate immediately.

What is the most appropriate response before proceeding?

• A. Tell the client the contract is unacceptable and recommend refusing the work without contacting the insurer.
• B. Advise the client to obtain legal review of the contract and send the insurance requirements to the insurer for coverage and endorsement confirmation before issuing evidence of coverage.
• C. Issue the certificate now with the requested wording because the client already carries CGL coverage and needs to meet the deadline.
• D. Ask a Level 3 licensee to approve the contract wording so the broker can confirm the client’s legal obligations.

Best answer: B

What this tests: Ethics and Professionalism

Explanation: A Level 2 broker may manage client recommendations independently, but must recognize limits. Confirming that an insurance policy satisfies a contract can involve legal interpretation, underwriting approval, and endorsement availability. The broker should not guarantee coverage, alter certificate wording beyond actual coverage, or give legal advice about indemnity obligations. The appropriate file response is to document the client’s request, advise legal review for the contract obligations, and obtain insurer confirmation for any additional insured, waiver of subrogation, pollution, or other special coverage requirements before issuing evidence of insurance.

• Issuing the certificate immediately could misrepresent coverage and create E&O exposure if the policy does not support the requested wording.
• A Level 3 licensee may assist with brokerage procedures, but cannot replace legal advice or insurer underwriting approval.
• Refusing the work without insurer consultation is premature because endorsements or alternate markets may be available.

The request involves contract interpretation and coverage commitments that require legal and insurer input before the broker represents that coverage is in place.

Question 6

Topic: Ethics and Professionalism

A Level 2 broker is reviewing an existing Alberta homeowner client’s renewal. The client has just bought an $18,000 engagement ring and asks whether it is “fully covered anywhere in Canada.” The renewal declarations show a $6,000 unscheduled jewellery limit for theft, no scheduled articles floater, and the brokerage’s binding authority requires insurer approval for jewellery items over $10,000. What is the best client-facing response?

• A. Add the ring to the file note immediately and tell the client the insurer will automatically honour the full value at renewal.
• B. Explain that the ring is not fully protected under the current jewellery limit, request an appraisal, and seek insurer approval before confirming any scheduled coverage.
• C. Confirm that the ring is covered for the full $18,000 because homeowner policies insure personal property anywhere in Canada.
• D. Bind a scheduled articles floater for $18,000 and advise the insurer after the client returns the appraisal.

Best answer: B

What this tests: Ethics and Professionalism

Explanation: A broker must identify and clearly explain coverage limitations that affect the client’s actual situation. Here, the policy declarations show an unscheduled jewellery theft limit of $6,000, so the client should not be led to believe the $18,000 ring is fully protected. The broker also cannot exceed binding authority by confirming scheduled coverage for an item over $10,000 without insurer approval. The proper response is to explain the current limitation, gather underwriting evidence such as an appraisal, submit the request to the insurer, and document the discussion. This protects the client from a coverage misunderstanding and reduces E&O exposure for the brokerage.

• Full coverage cannot be confirmed merely because personal property may have territorial coverage; the jewellery limit is the decisive restriction.
• A file note does not create or broaden coverage, and insurer acceptance cannot be assumed.
• Binding scheduled coverage above the brokerage’s authority before insurer approval creates an authority and E&O problem.

The stated limit and binding restriction require a clear limitation disclosure and insurer approval before the broker can confirm broader coverage.

Question 7

Topic: Ethics and Professionalism

A midsize Alberta brokerage has hired two new Level 1 brokers. The designated Level 3 broker asks an experienced Level 2 broker to help reduce E&O risk during their first month. Which assignment is most appropriate for the Level 2 broker?

• A. Create new binding authority rules for all producers and implement them without Level 3 approval.
• B. Permit the new Level 1 brokers to handle unsupervised commercial accounts once they complete an internal checklist.
• C. Coach the new brokers on renewal checklists, review selected files against existing procedures, and escalate recurring procedure issues to the Level 3 broker.
• D. Assume responsibility for the brokerage’s overall supervision program and report to the regulator as the person in charge of compliance.

Best answer: C

What this tests: Ethics and Professionalism

Explanation: A Level 2 broker may act independently and may perform practical coaching, mentoring, and some supervisory duties in an agency or brokerage. That can include helping newer staff understand procedures, reviewing work for accuracy, documenting feedback, and identifying E&O concerns. However, Level 3 remains responsible for overall brokerage management and supervision. A Level 2 broker should not take over the designated management role, set brokerage-wide compliance controls without authority, or expand another licence holder’s authority beyond permitted limits. The safest approach is to work within established procedures and escalate systemic concerns or authority changes to the Level 3 broker.

• Brokerage-wide compliance control and regulator-facing responsibility belongs to Level 3 overall management, not a Level 2 coaching assignment.
• Changing binding rules for all producers is a management authority issue and should not be done unilaterally by Level 2.
• An internal checklist does not convert Level 1 brokers into unsupervised commercial account managers if supervision or licence limitations still apply.

A Level 2 broker may coach, mentor, and perform limited supervisory file review while leaving overall brokerage control and procedure authority with Level 3.

Question 8

Topic: Ethics and Professionalism

A Level 2 broker is reviewing a commercial property renewal for a small Alberta cabinet shop. The expiring policy included replacement cost on building and equipment, sewer backup, and a $2,500 deductible. The renewal quote arrives 12 days before expiry with a 28% premium increase, a new $10,000 water-damage deductible, and a reduced equipment limit because the insurer has tightened its appetite for woodworking risks. The client has not yet been told about the changes and usually authorizes renewal by email.

What is the most appropriate policy-management response?

• A. Contact the client promptly, explain the material changes and available alternatives, obtain updated information for remarketing if needed, and document the recommendation and client instructions before renewal.
• B. Renew with the quoted insurer to avoid a lapse, then advise the client of the premium increase and coverage restrictions after the policy is issued.
• C. Ask the insurer to hold the expiring terms, but take no further action until the client contacts the brokerage about the renewal invoice.
• D. Move the account to any lower-premium market immediately, since the client has previously said price is the main concern.

Best answer: A

What this tests: Ethics and Professionalism

Explanation: When renewal terms materially change, the broker’s duty is not limited to processing the renewal. A premium increase combined with reduced limits and a higher deductible can affect the client’s risk financing and coverage expectations. The broker should notify the client promptly, explain the practical impact of the changes, gather updated underwriting information if remarketing may be appropriate, compare available options within market constraints, and obtain informed instructions before binding or renewing. Documentation is important because it shows what was disclosed, what was recommended, and what the client decided. Avoiding a lapse is important, but it does not justify leaving the client uninformed about material coverage restrictions.

• Renewing first and explaining later protects continuity but fails to obtain informed client instructions before accepting materially different terms.
• Waiting for the client to notice the invoice is inadequate because the broker has already identified significant changes requiring timely communication.
• Moving solely for a lower premium ignores coverage adequacy, underwriting fit, and the need to compare terms before recommending replacement coverage.

Material premium and coverage changes require timely client communication, informed recommendation, possible remarketing, and clear file documentation.

Question 9

Topic: Ethics and Professionalism

An existing commercial client calls after a water pipe bursts at its leased retail unit. The client says the adjuster has not yet confirmed coverage and asks the Level 2 broker to “tell me this will be paid so I can hire the restoration contractor today.” The policy appears to include commercial property coverage, but the broker has not reviewed the loss details, exclusions, or insurer position. What is the best client-facing response?

• A. Tell the client to hire the contractor and promise that the brokerage will make sure the insurer reimburses the cost.
• B. Explain that the insurer determines coverage after reviewing the facts, help the client report the claim promptly, document the discussion, and offer to follow up with the adjuster.
• C. Advise the client not to begin any mitigation work until the insurer confirms coverage in writing.
• D. Tell the client the claim should be paid because burst pipes are usually covered, then contact the adjuster to confirm the payment timeline.

Best answer: B

What this tests: Ethics and Professionalism

Explanation: A broker can advocate for the client, help with claim reporting, explain the process, gather information, document communications, and follow up with the insurer or adjuster. The broker should not guarantee coverage, payment, or the amount of settlement because those decisions belong to the insurer after the facts and policy wording are reviewed. In this situation, the client needs practical support and clear expectations. The broker can encourage prompt reporting and reasonable steps to protect property from further damage, but must avoid statements that create an E&O exposure or exceed broker authority.

• Saying the claim should be paid assumes coverage before the insurer reviews the facts and policy wording.
• Telling the client to wait on all mitigation could increase the loss and may conflict with the insured’s duty to protect property.
• Promising reimbursement by the insurer or brokerage exceeds the broker’s authority and creates a serious E&O risk.

This supports the client through the claims process while avoiding an unauthorized promise about coverage or payment.

Question 10

Topic: Ethics and Professionalism

A Level 2 broker at an Alberta brokerage is preparing several new commercial submissions. During an internal file review, she notices the brokerage’s errors and omissions certificate on file expired last week and no replacement certificate has been received. A coworker says the brokerage’s CGL policy should be enough for office mistakes and that client deadlines are more important. What is the most appropriate response?

• A. Escalate the issue and confirm continuous, compliant E&O coverage before proceeding as though the brokerage is properly protected.
• B. Proceed with binding and rely on the brokerage’s CGL policy for any professional advice errors.
• C. Wait to address the issue unless a client makes a formal E&O claim against the brokerage.
• D. Ask clients to sign a waiver accepting responsibility for any broker errors until the certificate is received.

Best answer: A

What this tests: Ethics and Professionalism

Explanation: Errors and omissions insurance is not just an optional business expense for an Alberta general insurance brokerage. It is a regulatory and professional control tied to the ability of the brokerage and licensed representatives to operate responsibly. E&O coverage responds to allegations such as negligent advice, failure to place requested coverage, documentation errors, or other professional service mistakes. If a certificate appears expired, the broker should not assume coverage exists or substitute another policy such as CGL. The practical response is to escalate promptly, verify continuous compliant E&O coverage, and follow brokerage procedures before continuing activity that could create uninsured professional liability exposure.

• CGL is aimed at bodily injury, property damage, and related liability exposures, not the professional advice errors E&O is designed to address.
• A client waiver does not replace a regulatory requirement or remove the broker’s professional duty.
• Waiting until a claim is made ignores the compliance and consumer-protection purpose of continuous E&O coverage.

E&O insurance is a regulatory and professional requirement because it supports licence compliance and protects clients, the brokerage, and licensed representatives from negligence-related financial loss.

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