Texas All Lines Adjuster Practice Test

Agency Authority is primarily derived from what source?

1. An oral agreement between the agent and the client

2. A written contract with the insurer

3. State insurance regulations

4. Industry standards and practices

The correct answer is: A written contract with the insurer

Agency authority is primarily derived from a written contract with the insurer, which formally establishes the relationship between the agent and the insurer. This contract details the specific rights and responsibilities of the agent, including the scope of authority granted to them to act on behalf of the insurer. It outlines pertinent information such as the types of policies the agent can sell, the limits of their authority, and certain obligations they must fulfill in this capacity. While oral agreements might be interpreted in some contexts, they lack the formal recognition and specificity that a written contract provides. State insurance regulations do provide a framework within which agents operate and define licensing requirements, but they do not grant agency authority on an individual basis. Similarly, industry standards and practices can influence behavior and conduct in the field, but they are not the primary source of the agency authority itself. The foundation of an agent's authority is fundamentally built upon the contractual relationship defined by the insurer, making a written contract the most critical and reliable source of agency authority.