What is the primary purpose of a certificate of authority?

The primary purpose of a certificate of authority is to demonstrate the authority to transact business in a specific state. This certificate is a document issued by a state's insurance department that confirms an insurance company is licensed and authorized to operate within that jurisdiction. Obtaining this certificate ensures that the insurer complies with state regulations and meets the necessary financial requirements, thereby protecting policyholders and maintaining market integrity.

Without a certificate of authority, an insurance company would be unable to legally conduct business in that state, which underscores the importance of this document in the regulatory framework of insurance. It establishes trust and accountability in the insurance market by ensuring that only those companies that meet necessary standards can offer their services to consumers in that state.