Acquisition of the Policy

A Video Explaining How to Acquire a Policy of Insurance

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The person buying insurance may only acquire insurance from an insurer by one of three methods:

By Meeting With An Agent of The Insurer

The agent is a person appointed by the insurer to transact insurance business with and on behalf of the insurer. The agent usually has the right to bind insurance in the name of the insurer without first obtaining permission from the insurer. The prospective insured presents his or her needs to the agent who will either accept or reject the proposed insurance. If accepted, the prospective insured is immediately an insured of the insurer.

California Insurance Code Section 31 defines insurance agent as “Insurance agent” means a person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life, disability, or health insurance, on behalf of an admitted insurance company.”

By Dealing With A Broker

An insurance broker is a person who transacts insurance with, but not on behalf of, an insurer. The broker’s only duty is to the prospective insured, so he or she shops for the broadest coverage available at the lowest possible price. The broker cannot bind an insurer without first obtaining a commitment in writing to insure the potential insured.

California Insurance Code Section 33 defines the term as follows: “’Insurance broker’ means a person who, for compensation and on behalf of another person, transacts insurance other than life, disability, or health with, but not on behalf of, an insurer.”

Through A Direct Writer.

Some insurers, known as direct writers, refuse to deal with agents or brokers. They will accept proposals for insurance directly from a prospective insured who will speak—usually by telephone—with an employee of the insurer who has the authority to accept a particular risk.

The agent is compensated solely by a commission from the insurer. The broker is usually compensated by a commission from the insurer plus a fee charged to the client policyholder, insurance applicant or insured.

The direct writer pays a salary to the person who meets (usually by telephone) with a prospective insured and can accept certain risks directly or with the permission of the insurer’s underwriting department.

In simple language the agent transacts insurance with a prospective insured on behalf of an insurer while the broker transacts insurance with but not on behalf of an insurer and only represents the prospective insured.

In Superior Dispatch, Inc. v. Insurance Corp. of New York, 181 Cal. App. 4th 175 (2010), the California Court of Appeal concluded that:

          Representations in an insurance application prepared by an insurance broker on behalf of an insured are attributed to the insured as a matter of law. (LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal.App.4th 1259, 1268.)

Insureds are, therefore, accountable for all statements made on their behalf by brokers who are their agents as opposed to agents of insurers. When a broker prepares an application for insurance, therefore, it is imperative for the prospective insured to carefully review the application to verify the accuracy of the statements made in it. Otherwise, insureds face the possibility that insurers may attempt to void coverage if there is a misrepresentation or concealment of a material fact made by the broker. On the other hand, information known to an agent – even if not transmitted to the insurer – is considered to be known to the insurer.

The Underwriter

The person who makes the decision to insure or not insure a prospective insured, in modern practice, is called an underwriter.  Unlike the original underwriters at Lloyd’s who invested his or her own money in the policy of insurance, the person with the title “underwriter” in modern American insurance, is usually an employee of an insurer who was employed to evaluate risks the insurer employer is willing to take.

The agent or broker deals directly with the insurer’s underwriter or an agent appointed by the insurer to act as its underwriter. The agent and broker try to present the risk to the insurer and underwriter best suited for the risk.

The underwriter is the risk taker. At Lloyd’s the underwriter risks his or her own funds. In modern insurance company practice the underwriter is the person who risks the funds of the insurer for whom he or she works.

The underwriter decides whether the risk presented by the broker or agent is the type of risk that the insurer is willing to take. Each insurer has specialized underwriters who look at risks differently, and different risks, and use their own criteria to evaluate them.

The Loss Prevention Engineer

If the risk the prospective insured proposes is large, he or she will often be visited by a loss prevention engineer. This person, employed by the insurer, is obligated to inspect the prospective insured’s real and personal property and interview him or her to ascertain that the insured and the property meet the requirements the insurer insists upon before it will accept a risk for insurance. Often, the risk inspection takes place after the insurance is agreed, but within 60 days of inception so if the risk does not qualify the policy can be effectively cancelled.

The Pre-Risk Inspection Service

If the risk is residential or a specialty type of business the insurer will have it inspected by a specialized company called a “pre‑risk inspection service.” Its inspectors are often experienced claims adjusters who understand the types of hazards faced by prospective insureds and their prospective insurers. The pre‑risk inspection service seeks much the same information for the insurer as the loss prevention engineer. In addition, it determines if there is any specialized information needed by the insurer because of the type of risk.

The pre-risk inspection service will conduct a different inspection for a residence in a middle-class neighborhood than one in a wealthy neighborhood where the dwelling is filled with fine art and antiques; likewise, inspection of a convenience store will differ from inspection of an antique store or jewelry store.

The pre-risk inspection service is versatile and entails much more active participation from the prospective insured than do the activities of the loss prevention engineer. After it completes its inspection, as with the loss prevention engineer, it recommends changes to the insurer. The insured will usually be required to make these changes as a condition of coverage before insurance takes effect.


The key to analyzing every claim presented to an insurer requires an analysis of the acquisition of the insurance policy, the representations made by the insurer to obtain the policy and the insurance that was agreed to by the insurer.

© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

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He is available at and Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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