Washington Insurance Regulation: The Commissioner, Insurance Transactions and Insurer Authorization

Washington Insurance Regulation: The Commissioner, Insurance Transactions and Insurer Authorization

Washington's insurance law gives you three practical questions to ask about almost any situation:

1. What activity is happening? Is it insurance, and is someone transacting it?
2. Who has authority? Does this company or person have the right permission for this activity?
3. What records must be available? If the state examines someone, what must they produce?

This lesson gives you the Washington rules behind each question.

What You Will Be Able to Do

• Describe what Washington's insurance commissioner may do, and the limit on that power.
• Decide whether an arrangement is insurance, whether an organization is an insurer, and whether an activity is an insurance transaction under Washington law.
• Explain how often insurers and producers can be examined, and what records they must provide.
• Tell an insurer's certificate of authority apart from a producer's license, and check whether a certificate covers a particular kind of insurance.

Before you start: You need no legal background. Each key term is explained when it first appears.

Check 1: What Activity Is Being Regulated?

Insurance

Plain takeaway: Insurance is a deal where one side promises to cover your loss, or pay a set amount, if a particular uncertain event happens.

Washington law defines insurance as a contract in which one party agrees to indemnify another or to pay a specified amount upon determinable contingencies.

• Indemnify means to compensate someone for a loss they actually suffered.
• A contingency is an event that may or may not happen. Determinable means you can tell afterward whether it happened.

Example: A fictional auto policy promises to pay for repairs if the car is damaged in a collision. Nobody knows in advance whether a collision will happen, but afterward you can tell. Paying for the actual repair cost is indemnifying. A different contract that promises a fixed $10,000 if a stated event occurs uses the other path: paying a specified amount. Both fit the definition.

Compare a prepaid oil-change plan. The shop changes your oil on schedule whether or not anything goes wrong. There is no uncertain event triggering the payment, so it lacks the feature that makes something insurance.

Insurer

Plain takeaway: An insurer is whoever is in the business of making insurance contracts. It is the party holding the promise to pay.

Two specific points matter:

• A reciprocal (also called an interinsurance exchange) is an insurer. In a reciprocal, members insure one another through the exchange.
• A fraternal benefit society is not an insurer under this definition. The definition expressly leaves that category out, so it is treated separately from insurers under this definition.

The law also names certain self-insurance groups as not being insurers. Self-insurance means an organization pays its own losses instead of buying a policy. For example, when two or more local government entities join together to form an organization that jointly self-insures or self-funds, that organization is not an insurer under the code.

The tempting mistake: concluding that anything called "self-insurance" is outside the definition. The law lists specific arrangements. A business that sells coverage to the public does not escape the definition just by labeling its product "self-insurance."

Checkpoint

Classify each fictional situation. Explain which definition decides it.

1. Three Washington counties join together and organize a new organization whose only purpose is to jointly self-fund their own liability losses. Is that organization an insurer?
2. A private company, Ridgeline Assurance Club, sells "self-insurance memberships" to the public. For a yearly fee, it promises to pay a member's actual repair costs if the member's car is damaged in a collision. Is this insurance, and is the company an insurer?

Answer: The county group is excluded; Ridgeline is an insurer

1. Not an insurer. The insurer definition specifically excludes two or more local governmental entities that join together and organize an organization to jointly self-insure or self-fund. All of those facts are present: more than one local government, a separate organization, and joint self-funding.
2. Yes, and yes. Paying actual repair costs after a collision is indemnifying against a determinable contingency, so the membership is insurance. Ridgeline is in the business of making these contracts with the public, so it fits the insurer definition. Its "self-insurance" label does not matter. It does not match any arrangement the law lists as excluded.

The tempting mistake is to treat the word "self-insurance" as an automatic exemption. The exclusion depends on who joined together and for what purpose, not on the name.

Insurance Transaction

Plain takeaway: Transacting insurance covers the whole life of a policy, from the first sales pitch to handling matters after the policy is in place. It is not just issuing the policy.

Washington's definition includes any of these:

• Solicitation: asking someone to buy insurance.
• Negotiations before the contract is finalized.
• Execution: making the contract final.
• Later matters that arise out of the contract after it is executed.
• Insuring itself.

Example: A fictional salesperson emails a bakery owner offering a policy (solicitation). They discuss price and options (negotiation). The bakery signs and the policy takes effect (execution). Months later, the bakery asks to change its policy (a later matter arising from the contract). Every step is an insurance transaction, not only the signing.

Checkpoint

A fictional company has never issued a Washington policy. It mails Washington business owners letters urging them to buy its coverage and offering to discuss pricing. Is it transacting insurance?

Answer: Yes, solicitation and negotiation count

Solicitation is listed in the definition, and so are negotiations before the contract. No policy has to be issued. The tempting mistake is thinking "transacting" means only issuing a policy.

Check 2: Who Has What Authority?

The Commissioner

Plain takeaway: The commissioner is the Washington state official who runs and enforces the insurance code. The commissioner's power comes from that code.

The commissioner:

• Has the authority the code expressly grants, plus authority reasonably implied by it.
• Must carry out the office's duties and enforce the code.
• May make reasonable rules to carry out the code's provisions, except rules about the commissioner's own election, qualifications or compensation. A rule is not effective until it is filed for public inspection in the commissioner's office.
• May investigate whether anyone has violated the code, and may hold examinations, investigations and hearings that help administer it.

The limit: Rules exist to carry out the statutes the legislature passed. They cannot rewrite them. A rule setting out detailed procedures for something a statute requires carries out the code. A rule declaring that a statute's requirement no longer applies would be changing the law, which the commissioner's rulemaking power does not allow.

Checkpoint

Consider two fictional proposals:

1. A new rule says domestic insurers with strong financial results will be examined only once every eight years.
2. A new rule sets out how insurers must organize and deliver records when examiners arrive.

Which fits the commissioner's rulemaking power? Is there anything else that must happen before the fitting rule takes effect?

Answer: The records-procedure rule fits; the eight-year rule does not

The statute requires the commissioner to examine each insurer holding a certificate at least once every five years. An eight-year rule would override that requirement, which is changing the law rather than carrying it out.

A rule on how records are organized and delivered helps carry out the examination provisions, so it is the kind of reasonable rule the commissioner may make. It still is not effective until it is filed for public inspection in the commissioner's office.

An Insurer's Certificate of Authority

Plain takeaway: A certificate of authority is the commissioner's written permission for a specific insurance company to operate as an insurer in Washington, limited to the kinds of insurance it lists.

The rule: no one may act as an insurer, and no insurer may transact insurance in Washington, unless it holds a certificate of authority from the commissioner that is currently in force, except where the code expressly provides otherwise for a transaction. Each certificate lists:

• the insurer's name;
• the location of its principal office;
• for a reciprocal, the name and principal office of its attorney-in-fact (the manager who acts for the exchange);
• the kinds of insurance it may transact in Washington.

That last item means a certificate for one kind of insurance does not authorize other kinds.

Certificate Versus Producer License

Plain takeaway: A producer is someone who must hold a Washington license to sell, solicit or negotiate insurance. The producer can be an individual or a business.

Each of those three activities has a specific meaning:

• Sell: exchange an insurance contract for money on behalf of an insurer.
• Solicit: try to sell insurance, or urge someone to apply for a particular kind of insurance from a particular insurer.
• Negotiate: confer with or advise a buyer directly about a particular policy's benefits, terms or conditions, when the person either sells insurance or obtains insurance from insurers for buyers.

A producer's license is the commissioner's document allowing that person to act as a producer for the lines of authority listed on it. The license by itself does not give the holder authority to represent or commit any insurer. Other licensing rules belong to a separate module.

The two permissions answer different questions:

• Certificate of authority: May this company act as an insurer here, and for which kinds of insurance?
• Producer license: May this person or business sell, solicit or negotiate insurance, and for which lines?

An insurer's certificate does not license its salespeople, and a producer's license does not let anyone act as an insurer.

Domestic, Foreign and Alien

These labels describe where an insurer was formed:

• Domestic: formed under Washington law.
• Foreign: formed under the laws of another U.S. state or territory, the District of Columbia, or the United States itself.
• Alien: formed under the laws of a nation other than the United States.

"Foreign" does not mean another country. A company formed in Oregon is a foreign insurer in Washington. These labels say nothing about whether the insurer has a certificate.

A Narrow Claim Exception

Investigating and adjusting a claim in Washington that arises under a contract issued by an unauthorized insurer (an insurer not authorized by an applicable Washington certificate then in force) is not considered transacting insurance in Washington. Handling that kind of claim does not, by itself, count as unauthorized insurance business. It does not make the original sale lawful, and it does not let the insurer sell new coverage.

Worked Comparison

Two fictional insurers want to sell commercial property coverage in Washington.

• Evergreen Mutual was formed in Washington, so it is domestic. Its certificate is in force and lists property insurance. It may transact property insurance in Washington.
• Harbor Point Insurance was formed in Idaho, so it is foreign. Its certificate is in force but lists only vehicle insurance. It may not transact property insurance in Washington.

Change one fact: Harbor Point was formed in Washington instead. It is now domestic, but its certificate still lists only vehicle insurance. Changing where it was formed changes the label, not the authority. The certificate's listed kinds are what decide the answer.

Checkpoint

A fictional producer holds a valid Washington producer license. The producer's friend, who has no insurance company, asks whether that license lets them start offering their own coverage to the public. What do you say?

Answer: No, a producer license is not a certificate of authority

Generally, no one may act as an insurer in Washington without a certificate of authority issued by the commissioner and then in force, except for transactions the code expressly provides otherwise. Nothing in these facts points to such an exception. A producer license covers selling, soliciting or negotiating insurance for listed lines. It is a different permission for a different role.

Checkpoint

A fictional insurer formed under Canadian law holds a Washington certificate in force listing vehicle insurance. A colleague calls it a "foreign insurer authorized for all lines." Find both errors.

Answer: It is alien, and it is limited to listed kinds

An insurer formed under another nation's laws is alien, not foreign. Its certificate covers only the kinds of insurance listed on it, so it may transact vehicle insurance here, not every line.

Check 3: What Records Must Be Accessible?

Examining Insurers

The commissioner must examine each authorized insurer as often as the commissioner considers advisable, and must examine each insurer holding a certificate at least once every five years. Five years is a maximum gap, not a fixed schedule. Factors like financial analysis results or a change in ownership can lead to examinations sooner. Insurers applying for authority are examined too.

An examination does not always mean Washington examiners personally go through everything. The commissioner may:

• accept another state's examination report on a foreign or alien insurer, if that report meets accreditation conditions in the law;
• rely on an independent certified public accountant's audit for the part of the examination covering the same subject;
• limit an examination of an alien insurer to its U.S. insurance business.

Examining Producers

The commissioner may examine a producer's accounts, records, documents and transactions as often as the commissioner considers advisable. There is no fixed five-year cycle for producers.

The Records Duty

Anyone being examined, along with their officers, employees and representatives, must:

• produce and make freely accessible the accounts, records, documents and files in their possession or control that relate to the subject of the examination; and
• otherwise help the examination go forward.

If the commissioner finds the accounts inadequate or improperly kept, the commissioner may hire experts to rewrite, post or balance them, and the person being examined pays for it.

Example: A producer stores client files in an off-site storage unit they rent. The files are not in the office, but the producer controls them, so they must be made available if they relate to the examination.

Checkpoint

A fictional producer was examined last year. They tell a coworker, "I'm safe for five more years." Are they right?

Answer: No, producers can be examined whenever advisable

The at-least-every-five-years rule applies to insurers. For producers, the commissioner may examine as often as the commissioner considers advisable.

Checkpoint

During a fictional insurer's examination, its claim records are so disorganized that examiners cannot balance the accounts. The company says it will fix them "eventually." What may the commissioner do, and who pays?

Answer: Hire experts at the insurer's expense

When accounts are inadequate or improperly kept, the commissioner may employ experts to rewrite, post or balance them, and the insurer being examined pays.

Summary

• Insurance: a contract to indemnify or pay a set amount if an uncertain, determinable event happens.
• Insurer: anyone in the business of making insurance contracts. Reciprocals count; fraternal benefit societies and specifically listed self-insurance groups do not.
• Insurance transaction: solicitation, negotiation, execution, later contract matters and insuring, not just issuing a policy.
• Commissioner: enforces the code, makes reasonable rules to carry it out and investigates, but cannot rewrite statutes.
• Certificate of authority: a company's permission to act as an insurer, limited to listed kinds of insurance. It is required except where the code expressly provides otherwise.
• Producer license: permission for a person or business to sell, solicit or negotiate insurance for listed lines. It is separate from a certificate and does not by itself let the holder commit an insurer.
• Domestic, foreign, alien: Washington, another U.S. jurisdiction, another nation. These labels are not proof of authority.
• Examinations: insurers at least every five years and possibly more often. Producers as often as advisable. Relevant records in your possession or control must be freely accessible.

Learner Sources

• RCW 48.01.040, "Insurance" defined: https://app.leg.wa.gov/RCW/default.aspx?cite=48.01.040
• RCW 48.01.050, "Insurer" defined: https://app.leg.wa.gov/RCW/default.aspx?cite=48.01.050
• RCW 48.01.060, "Insurance transaction" defined: https://app.leg.wa.gov/RCW/default.aspx?cite=48.01.060
• RCW 48.02.060, General powers and duties: https://app.leg.wa.gov/RCW/default.aspx?cite=48.02.060
• RCW 48.03.010, Examination of insurers: https://app.leg.wa.gov/RCW/default.aspx?cite=48.03.010
• RCW 48.03.020, Examination of producers and others: https://app.leg.wa.gov/RCW/default.aspx?cite=48.03.020
• RCW 48.03.030, Access to records on examination: https://app.leg.wa.gov/RCW/default.aspx?cite=48.03.030
• RCW 48.05.010, Domestic, foreign and alien insurers: https://app.leg.wa.gov/RCW/default.aspx?cite=48.05.010
• RCW 48.05.030, Certificate of authority required: https://app.leg.wa.gov/RCW/default.aspx?cite=48.05.030
• RCW 48.17.010, Definitions (producer, license, sell, solicit, negotiate): https://app.leg.wa.gov/RCW/default.aspx?cite=48.17.010