What is the purpose of a license or charter for an insurer?

The purpose of a license or charter for an insurer is to authorize an insurer to conduct business. This authorization serves as a regulatory measure that ensures the insurer meets specific criteria set by state insurance departments, thereby protecting consumers. By obtaining a license or charter, an insurer demonstrates compliance with legal requirements and financial stability, which enables it to operate within a given jurisdiction. This regulatory oversight helps maintain the integrity of the insurance market and builds trust among policyholders, knowing that the insurer is recognized by regulatory authorities to conduct insurance business. In this context, the other options do not directly reflect the primary function of a license or charter. For example, while establishing premium rates might be a necessary part of an insurer's operations, it is not the primary purpose of the license itself.