In a principal-agent relationship, who is the principal?

In a principal-agent relationship, who is the principal?

• A. The insured
• B. The insurer
• C. The agent
• D. The reinsurer

Answer: (B)

In a principal-agent setup, the principal is the party that delegates authority to act on its behalf. In insurance, the insurer gives agents or brokers the authority to solicit applications, collect premiums, issue policies, and bind coverage. Because the insurer is the one granting that authority, it is the principal. The insured is the customer seeking protection, not the party authorizing someone to act for the insurer, and the reinsurer is a separate entity that takes on risk from the insurer, not the agent’s principal. The agent’s role is to represent the insurer within the scope of the authority the insurer provides, including binding coverage when appropriate.

In a principal-agent setup, the principal is the party that delegates authority to act on its behalf. In insurance, the insurer gives agents or brokers the authority to solicit applications, collect premiums, issue policies, and bind coverage. Because the insurer is the one granting that authority, it is the principal. The insured is the customer seeking protection, not the party authorizing someone to act for the insurer, and the reinsurer is a separate entity that takes on risk from the insurer, not the agent’s principal. The agent’s role is to represent the insurer within the scope of the authority the insurer provides, including binding coverage when appropriate.