Transact

What does it mean to “transact” insurance?

The California Insurance Code defines what it means to “transact” insurance. This definition matters because it determines which activities are regulated and which ones require a license in California. In practice, the definition is broad, covering most interactions involved in selling, servicing, or administering insurance.

Solicitation (§35(a))

Solicitation is any act that encourages or invites someone to apply for, purchase, or consider purchasing insurance. It’s more than simply asking, “Are you interested in insurance?” It can include:

• Direct mailings, emails, or advertisements promoting insurance products.
• Informational sessions, seminars, or webinars where insurance is discussed as a potential solution.
• One-on-one conversations where an individual is encouraged to explore insurance options, even if no specific policy is presented at that moment.
• Any action intended to generate interest in an insurance product or service.

Negotiation (§35(b))

Negotiation covers the back-and-forth discussions that happen before a policy is finalized. It includes any dialogue about the terms, conditions, or scope of coverage - not just the price.

Examples:

• Discussing deductibles, premium amounts, or coverage limits.
• Explaining policy exclusions or limitations.
• Customizing a policy to fit a client’s specific needs or risk profile.
• Answering questions about policy provisions or endorsements.
• Any conversation aimed at reaching a mutual understanding of the insurance contract’s specifics.

Execution (§35(c))

Execution is the formal act of creating an insurance contract. It’s the point when the agreement becomes legally binding. This includes:

• Completing and submitting insurance applications.
• Signing policy documents, endorsements, or riders.
• Accepting terms and conditions, whether through a physical signature, electronic signature, or other legally recognized means of consent.
• The finalization of the agreement between the insurer and the insured.

Transaction of matters after contract (§35(d))

This part of the definition extends “transact” beyond the initial sale. It includes the ongoing work connected to an existing policy, which means post-sale activities are also regulated and may require appropriate licensing. This includes:

• Processing policy renewals or modifications.
• Handling claims, from initial reporting to settlement.
• Providing customer service related to policy inquiries, billing, or coverage changes.
• Advising clients on policy upgrades or changes in their insurance needs.
• Any administrative or advisory function performed in connection with an existing insurance policy.

The California Insurance Code makes it clear that only individuals who are appropriately licensed by the state of California may transact insurance. This requirement serves several purposes:

• Consumer protection: It ensures that individuals providing insurance advice or services have met minimum competency and ethical standards, protecting the public from misinformation, fraud, or unqualified practitioners.
• Market integrity: It prevents unauthorized individuals from engaging in insurance activities, which could disrupt the regulated market and undermine consumer trust.
• Accountability: Licensing provides a mechanism for regulatory oversight, allowing the California Department of Insurance (CDI) to track and hold accountable those who engage in insurance activities. Violations of the Insurance Code by licensed individuals can lead to disciplinary actions, including fines, license suspension, or revocation.
• Professional standards: It elevates the professional standards within the insurance industry, promoting best practices and ethical conduct among those who interact with the public on insurance matters.