In California, the Insurance Code makes an important distinction between agents and brokers, which is essential for understanding the roles and legal responsibilities of each.
Agent (Cal. Ins. Code §31):
- An insurance agent is an individual or business entity who is appointed by and represents an insurer. Agents act on behalf of the insurance company, not the policyholder. They are authorized to transact all classes of insurance, with the exception of life, disability, or health insurance unless they hold the proper licenses for those lines. Because agents are tied directly to insurers, they serve as the company’s official representatives when offering coverage, binding policies, or collecting premiums.
Broker (Cal. Ins. Code §33):
- An insurance broker, by contrast, represents the insured (the customer) rather than the insurance company. Brokers work independently to find coverage that best suits the client’s needs by approaching multiple insurers. They are typically compensated by commissions paid by the insurer, or in some cases, by fees paid by the policyholder. Importantly, brokers in California cannot transact life insurance. Their authority is limited to property, casualty, and other non-life lines of coverage.
Special Note – Life and Health Insurance:
- California law restricts the sale of life and health insurance to licensed agents only—brokers cannot transact these lines of coverage. This is to ensure closer regulation of these products, which involve sensitive long-term financial and health-related commitments.
Settlement Brokers (CIC §§10113.1–10113.3):
- A related but distinct category is the life settlement broker, who negotiates the sale of an existing life insurance policy from the policyholder to a third party (often an investor). These transactions are heavily regulated due to the financial and ethical considerations involved.
Understanding the differences between agents and brokers is critical for recognizing who each party serves: the agent serves the insurer, while the broker serves the insured.
Acting Without Appointment (Cal. Ins. Code §1704.5)
In California, insurance agents are not only required to hold a valid license but must also be formally appointed by each insurer they represent in order to legally transact business on that insurer’s behalf. This requirement is particularly important for life insurance agents, who may be licensed for life insurance but cannot act for an insurer unless the insurer has submitted the appropriate appointment to the California Department of Insurance (CIC §1704.5).
Key points include:
- Appointment Requirement – A licensed life agent must receive a formal appointment from an insurer before selling, soliciting, or negotiating policies on that insurer’s behalf. Without this appointment, any insurance activity performed is considered unauthorized.
- Legal Consequences – Acting for an insurer without a proper appointment is a violation of California licensing laws and can result in disciplinary action, including fines, license suspension, or revocation.
- Purpose – The appointment system ensures accountability and proper oversight. It protects consumers by making certain that only authorized and vetted agents are transacting insurance on behalf of insurers.
In practice, this means that even if an agent is fully licensed, they cannot assume the authority of an insurer without an official appointment. This distinction helps maintain the integrity of the insurance marketplace and ensures that insurers remain responsible for the actions of their agents.
Solicitors and Additional Roles
In addition to agents and brokers, California law recognizes another role within the insurance distribution system: the insurance solicitor.
Under California Insurance Code §34, a solicitor is a natural person employed to aid an insurance agent or broker in transacting insurance. A solicitor is not authorized to conduct insurance business independently. Instead, they must always operate under the authority and supervision of a licensed agent or broker.
Key points about solicitors include:
- Employment Relationship – A solicitor works for, and is appointed by, a licensed agent or broker. They cannot represent an insurer directly.
- Limited Authority – Unlike agents, solicitors cannot bind coverage or transact all aspects of insurance business. Their authority is limited to assisting in the solicitation and servicing of insurance under the supervision of their appointing agent or broker.
- No Independent Operation – Solicitors cannot legally conduct insurance activities on their own or establish their own book of business.
