Georgia Adjuster Practice Test

What does "churning" involve in insurance practices?

1. Keeping all existing policies without changes

2. Replacing an insured’s policy to secure an additional commission

3. Offering clients discounts on multiple policies

4. Advising clients to switch companies regularly

The correct answer is: Replacing an insured’s policy to secure an additional commission

Churning in insurance practices refers specifically to the practice of replacing an insured's policy with a new one primarily to generate additional commissions for the agent or broker. This practice can be detrimental to the policyholder, as they may incur additional costs or lose benefits associated with their original policy without receiving any meaningful advantage from the new policy. When an agent engages in churning, they may not fully disclose or consider the implications of changing the policy, such as potential gaps in coverage or the loss of valuable benefits. This behavior is often considered unethical and can lead to regulatory scrutiny, as it prioritizes the agent's financial gain over the needs and best interests of the client. The other options do not accurately represent the concept of churning. Keeping existing policies intact, offering discounts for multiple policies, or regularly advising clients to switch companies do not inherently involve the same unethical motivations and consequences associated with churning. Thus, the correct identification of churning highlights the specific unethical practice of replacing policies solely for additional commissions.