Insurance Broker Certification Practice Exam

What does an authorized insurer possess to transact insurance in a state?

1. A License to operate

2. A Certificate of Authority

3. An insurance policy

4. A business charter

The correct answer is: A Certificate of Authority

An authorized insurer must possess a Certificate of Authority to legally transact insurance within a specific state. This certificate is granted by the state's insurance regulatory authority and indicates that the insurer meets all necessary legal and financial requirements to operate in that state. It serves as proof of the insurer’s compliance with state laws, including capital requirements and adherence to regulatory guidelines. This certification is crucial because it protects consumers, ensuring they are engaging with insurers that are financially stable and compliant with regulations. Without it, an insurer would be unable to sell insurance products or receive premium payments legally in that state. While a license to operate might sound similar, it generally refers to broader business operations and doesn't specifically signify authorization to engage in insurance transactions. An insurance policy is a contract that provides coverage but does not relate to the authority of the insurer itself. A business charter relates to the formation of a company but is distinct from the specific requirements needed to operate as an insurance provider.