Although the organization and formation of an insurance company is governed to some extent by the law applying to the organization of corporations in general, most states have supplanted their general corporation law with special acts pertaining only to insurance companies. Originally, an insurer could be formed only by a special act of the legislature. When this proved to be a burdensome and unwieldy procedure, states moved to passing general incorporation laws under which charters could be obtained directly from a state official, typically the secretary of state. After the responsibility for the supervision of insurance was vested in a specific state official (that is, the insurance commissioner), his or her approval became necessary for incorporation. Such approval required the insurer to comply with the statutory conditions for incorporation.

State insurance codes require a charter to describe the name and location of the company, the lines of insurance it contemplates writing, the powers of the organization and its officers, and often the internal organization. (State insurance codes define the permissible lines of insurance which may be written, for example, life, disability, property, marine, casualty, surety, title and reinsurance.) Before issuing the certificate of incorporation, a responsible state official will investigate the character of the incorporators of the new insurer.

Even when the incorporation requirements are met, the officers and directors have been selected and approved and a certificate of incorporation has been issued by the state in which the insurer is domiciled, the company may not yet commence engaging in the insurance business. While technically incorporation confers legal existence on the insurer, by itself, it does not grant the company the authority to engage in the insurance business. Generally all insurers doing business within the state must obtain a license (called a certificate of authority in some states). The license or certificate of authority is a formal document certifying that the company has complied with all applicable laws and is authorized by the state to engage in the kinds of insurance specified.

To obtain a license to do business in a state, the insurer must comply with that state’s statutory requirements. The requirements for licensing domestic insurers may be the same as those for its formation. When issued to a domestic insurer, typically the license is continuing without the need for periodic renewal. But, in some states it can be revoked for cause.

In addition to its formation and obtaining a license from its own domestic state, an insurer must obtain a license from every other state in which it wants to do business. The requirements for licensing foreign (out-of-state) and alien (out- of-country) insurers typically are similar to the requirements for domestic insurers (perhaps with some additions). However, a foreign or alien company usually is required to appoint a resident of the licensing state as its attorney for the purpose of service of legal process.

Commonly, the application for a license to do business in another state must include a description of the insurer management, history of the insurer, list of the states in which the insurer is licensed and the lines of insurance which it has been writing. States also review the insurer’s plans for writing business in the state. Furthermore, the insurer must provide a copy of its articles of incorporation and a confirmation from the insurer’s domiciliary state that the company’s finances, including its capital and surplus, maintained in the domiciliary state are adequate. Other documents which need to be submitted include biographical information on senior officers and directors, copies of reinsurance contracts and management contracts, if any, and recent financial statements.

The license for a foreign company recites the kinds of insurance which the company intends conducting within that state. An insurer may not engage in any type of business not authorized by its domestic charter. However, the fact that its charter authorizes an insurer to write a line of business does not mean that it must do so in any or all of the foreign states in which it does business.

A license obtained from a state other than its state of incorporation usually is valid for one year. Thus it must be renewed annually. To obtain a license in a state other than its home state, the insurer must comply with all the pertinent laws of that state. This usually involves depositing a specified amount of securities with a designated state official to assure payment of claims to policyholders residing in that state.

In all states, the insurance commissioner, for sufficient reason, can refuse to issue a license in the first instance, fail to renew a license which has expired, or revoke a license before its normal expiration date. The grounds for such actions may differ as between states in statutory language, but in substance they are quite similar. The commissioner may by authorized to deprive a company the privilege of doing insurance business in the state on such broad grounds that it "is in the public interest" or "will best promote the interest of the people of the state." In addition, there are numerous specific grounds. However, there are two broad limitations on the licensing authority of the state: (1) the state cannot impose as a condition of licensing the waiving of safeguards provided under the federal Constitution and (2) the insurance commissioner, in the exercise of his or her broad discretionary powers, may not impose requirements going beyond state legislative policy as manifested by its legislation.

In short, the power of the insurance commissioner to grant or disapprove license applications, fail to renew licenses and/or revoke licenses to do business in the state serves as the foundation of regulatory control of insurance companies. Without the license, it is illegal for an insurer do business in the state. In order to obtain and maintain the license, the insurer must comply with the regulatory conditions imposed. Thus, the licensing power serves as the key to enforcing regulatory requirements, that is, it is the foundation for regulatory control.