Certificate of authority

Insurance is regulated primarily at the state level, so a company must be licensed separately in every state where it wants to sell. The certificate of authority is that license. To obtain one, an insurer files its charter and financial statements with the state insurance department and must satisfy minimum capital and surplus requirements, demonstrate competent management, and meet the state's solvency standards. The certificate names the specific lines — life, health, property, casualty — the company may write.

An insurer holding a valid certificate of authority is called an authorized or admitted insurer. One writing business in a state without a certificate is unauthorized or non-admitted. The distinction has practical consequences: policies from admitted carriers are backed by the state guaranty association if the insurer becomes insolvent, and their rates and forms are subject to state approval. Non-admitted business is generally limited to surplus lines, placed through a specially licensed surplus lines broker only when coverage is unavailable from admitted carriers.

Producers should not confuse the two licenses in play. The certificate of authority licenses the company; a producer license authorizes the individual to sell. An agent who places business with an unauthorized insurer can face disciplinary action and may become personally liable on the contract.

A certificate of authority is not permanent. The insurance commissioner can suspend or revoke it for insolvency, unfair trade practices, failure to pay claims, or failure to file required reports, and the insurer must renew it under the state's schedule.

This concept appears early in every state licensing course. The property, casualty, and life and health exams all test it under general insurance concepts and insurance sources, usually by asking you to distinguish authorized from unauthorized insurers or to identify who issues the certificate.