You want to start an Insurance Company?

The licensing of an insurance company to sell insurance in California is under exclusive jurisdiction of the California Department of Insurance. The licensing is a two-step process involving the application for either a Solicitation or Organizational Permit and ultimately the application for a Certificate of Authority to sell insurance. The Insurance Commissioner’s evaluation of the documents submitted in support of those applications is a time-consuming process designed to provide a basis for the Insurance Commissioner’s decision regarding the applicant’s business experience and financial ability to stand behind policies of insurance sold to residents of the State of California.
In general, various forms and instructions necessary to comply with a number of the requirements for an application for a certificate of authority have been available on the Insurance Commissioner's website for a number of years. With respect to an application for an organizational permit, aside from a general checklist, which is also available from the Insurance Commissioner's website, and a few general statements about the law, the process is still subject to the development and submission of a plan of operation and a number of supporting documents defining the applicants marketing and operational infrastructure. The submission of the information on the checklist does not guarantee immediate or even eventual approval. In the vast majority of cases, there is significant give-and-take as the various supporting documents are modified comply with the Insurance Commissioner's formal and informal requirements. This process is time-consuming and has the ultimate effect of delaying the implementation of the companies marketing of its products in California. The ability to submit an application which fully complies with the requirements of the Insurance Commissioner resulting in an expedited review and approval and ultimately issuance of a certificate of authority has great appeal.

General Considerations:

These concepts and ideas apply whether you are starting from scratch or amending your existing Certificate of Authority. clearly, there are other detailed issues which must be addressed, but for a cursory review, consider the following areas which you must address before you start your effort to get admitted to sell insurance in California.

Business Plan: A company’s business plan is unique to the company’s operations and marketing strategy. The infrastructure and the manner in which they will market the insurance product, how they will collect and invest the insurance premium, how they will establish reserves and in what securities or assets they will invest those reserves reflects that companies ability to compete for the same insurance product. The detail information contained in a business plan and marketing strategy is unique and, at least for those successful operations, is a coveted trade secret.
The process involves the development of a business plan for the proposed insurance company. This business plan is central to an application for an Organizational Permit. This permit authorizes the company to solicit investors in the company stock and authorizes the issuance of company shares in exchange for the company's initial capital and surplus. Subsequent to the issuance of this permit, an application for a Certificate of Authority from the Department authorizing the company to transact the specific classes of insurance is filed with the Insurance Commissioner.
Management: The Insurance Commissioner evaluates the company's management's ability, integrity, knowledge/experience in the insurance business, and special problems of financial analysis may raise. The time to issue the Certificate of Authority is dependent directly by the time it takes to resolve the Department's questions about the Company's plan of operation, finances, shareholders and management.
The competency and integrity of management is a major concern of the Department when it reviews an Application. The company's executive officer must have special knowledge of the insurance business, should be knowledgeable in the area of claims handling and underwriting, and should be knowledgeable of reinsurance.
From past experience, we have noted that successful insurance companies keep their operating expenses "as lean as possible" during the start-up years. This does not mean the salary of key executives should be kept as lean as possible. On the contrary, hiring a talented executive at a substantial salary seems to enhance the Company's growth. Nevertheless, tight control of expenses in the early years is an essential ingredient to success. We recommend that no key executives be hired until the Organizational Permit is issued.
Reinsurance: Proper use of reinsurance is an area that many new companies overlook. Reinsurance has a tremendous impact on the viability and profitability of the Company. Arrangements with reinsurers are individually negotiated, and an executive with sharp negotiating skills can "cut better deals" for the Company.
Marketing. Sales are obviously vital to the success of the Company. Unless insurance is sold, nothing happens. The decision as to how to market the product will play a significant role in the Company's success.
Underwriting. Risk selection directly affects the Company's future. It is essential to select a proper rate for your product. Bad decisions on expenses, claims handling or marketing will slowly strangle the Company over a period of time. Bad decisions on rates will cause a sudden demise.
Claims handling. This is an area where you will need sound professional help. Mistakes in this area are costly. Every error in claims handling in California has the potential for developing into a lawsuit that could involve subjecting the Company to punitive damages.
Investments. Investments must be conservative and limited to those authorized by the California Insurance Code.
Once all Department divisions provide approval, the Deputy Commissioner will issue an Organizational Permit giving the Company sufficient time in which to raise the funds necessary to capitalize the company. During this period, you will have to sell the Company's stock and obtain the funding from the shareholders. Once the financing is complete, the Department will conduct a qualifying examination.
When the Department is satisfied that the company will be viable and its organization complies with state law it will issue the organizational permit. Issuance of a Certificate of Authority normally takes an additional sixty days.

The insurance industry is highly regulated and requires constant attention to compliance with the regulator's current and developing rules and regulations.
Good Luck.