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Frequently Asked Questions

Property and casualty guaranty funds are part of a non-profit, state-based, statutorily-created system that pays certain outstanding claims of insolvent insurance companies. By paying these claims, guaranty funds, sometimes called guaranty associations, protect policyholders and claimants.

Guaranty funds are active in every state, the District of Columbia, Puerto Rico and the Virgin Islands. State laws require that licensed property and casualty insurance companies belong to the guaranty funds in every state where they are licensed to do business.

The Indiana Insurance Guaranty Association was created by the Indiana legislature in 1971 to provide a mechanism for the payment of covered claims under certain types of insurance policies to avoid excessive delay in payment and to avoid excessive financial loss to claimants or policyholders because of the insolvency of an insurer.

A guaranty fund system also exists for the life, health and annuity insurance industry; but it operates independently from the property and casualty system. This information concerns only the property and casualty guaranty funds. Please visit the Indiana Life and Health Insurance Guaranty Association website at www.inlifega.org for more information.

The potential failure of insurance companies, like the potential failure of all businesses, is an unfortunate, but inevitable, part of doing business in a free-market system.

Since inception of the property and casualty guaranty fund system, nationwide there have been about 600 insolvencies. In all, nationwide the system has paid out about $24.2 billion.

Guaranty funds largely are funded by industry assessments, which are usually collected following insolvencies. These assessments raise funds to pay claims and administrative and other costs related to the guaranty funds claim paying activities.

Assessments by the IIGA are capped at one percent of a company’s net direct premium written in similar lines of business in Indiana in the prior year, although in exceptional circumstances amounts can be increased by state legislatures. The other source of funding is recoveries from receivers of the insolvent insurance companies. Assessment costs are recouped by various means.

Assessments are computed and billed based on the immediate needs of the guaranty association that has claims it needs to pay. Claim files come in to the guaranty fund from the insolvent insurance company; our adjusters review them, and set appropriate reserves on those files. (Reserves are the projected ultimate liability under terms of a given policy.)

In Indiana the assessment cap is one percent of net direct-written premium. Guaranty funds cannot assess an insurance company over the statutorily set cap on assessments. An additional source of funding also include recoveries from the receivers of insolvent insurance companies, paid as the courts allow.

The state insurance commissioner or a representative is appointed receiver by the appropriate court and begins the process of collecting assets and determining the company’s outstanding liabilities. When all policy claims have been determined and resolved and all assets recovered and other obligations handled, a final distribution is made to the company’s creditors. This is almost always less than 100 percent of what is owed; usually this final distribution is made a number of years after the company is ordered liquidated.

In most cases, an estate will not yield sufficient money to pay claims in full; and most are not able to pay claims in a timely manner. For this reason, one or more guaranty funds step in (depending on the states where the company was licensed to sell insurance and then wrote business) to cover certain claims. The estate’s creditors not covered by the guaranty funds (among them large corporate entities that opt to buy less expensive alternative risk products) usually receive only partial payment on their claims.

Guaranty funds ease the burden on policyholders and claimants of the insolvent insurer by immediately stepping in to assume responsibility for most policy claims following liquidation. The coverage guaranty funds provide is fixed by the policy and/or state law; they do not offer a “replacement policy.”

By virtue of the authority given to the guaranty funds by state law, they are able to provide two important benefits: prompt payment of covered claims and payment of the full value of covered claims up to the limits set by the policy or state law.

A court-appointed receiver for the liquidated insurance company will notify you about how to file a claim and how long you have to do file it. Pay close attention to filing deadlines mentioned in the notice. The receiver will forward the claim onto the appropriate state guaranty association having jurisdiction over the claim. 

Yes. The time limit for reporting a claim after an insolvent insurer is liquidated can vary by each state and insurer. It is common for the courts to assign a one year time frame from the date of the liquidation order to make a claim. Guaranty associations go through a process to determine covered claims based upon their individual state statutes. 

Yes. Most covered claims are ‘capped’ at certain amounts by IC 27-6-8-7. ;
Insolvent companies for which an order of rehabilitation or liquidation occurs on or after July 1, 2013:

  • $300,000 for most covered claims, subject to the policy limits, terms and conditions, whichever is less.
  • No specified dollar limit applies to covered workers compensation claims
  • The lesser of 80% of paid but unearned premium or $650 multiplied by the number of months remaining in the policy term, not to exceed 12 months

Insolvent companies for which an order of rehabilitation or liquidation occurred on or before June 30, 2013:

  • $100,000 for most covered claims including workers compensation, subject to the policy limits, terms and conditions, whichever is less.
  • The lesser of 80% of paid but unearned premium or $650 multiplied by the number of months remaining in the policy term, not to exceed 12 months

 

It varies, but claim payments usually begin as soon as possible once a company is ordered liquidated and IIGA receives claim files and policy coverage information from the receiver. It is not uncommon for claims to be paid within 60-90 days after the order of liquidation.

Guaranty funds, coordinating with the receivers of the liquidating companies, work hard to avoid any interruption in periodic benefits that are being paid to claimants, such as workers’ compensation loss-of-wages payments.
 

No. The state insurance guaranty funds are designed as a safety net to pay certain claims arising out of policies issued by licensed insurance companies. They do not pay non-policy claims or claims of self-insured groups, first party claims by an insured or third party claims by a claimant against an insured that exceeds the ‘net worth’ provision of IC 27-6-8-11.5 (as of 7-1-2013) and IC 27-6-8-4 (before 7-1-2013) or other entities that are exempt from participation in the guaranty fund system.
In addition, some lines of business are excluded from guaranty fund coverage, such as surety bonds, warranty coverage and credit insurance. (Life and health claims and annuity claims are covered by the life and health guaranty funds, not the property and casualty system.)

Follow this link to the Indiana Life and Health Insurance Guaranty Association

http://www.inlifega.org/

Guaranty fund coverage is limited to insurers licensed to do business in the state of Indiana. (the members of the guaranty funds that, in turn, pay insolvency-related assessments.) When a licensed insurance company becomes insolvent, the guaranty funds pay eligible claims; but a company does not have guaranty fund coverage if it is writing non-admitted or unlicensed products, such as surplus lines or is a self-insurer covered in the non-admitted market.

A complete description of the types of claims covered by IIGA can be found at IC 27-6-8

A copy of the IIGA Act can be found in the News Page of this website. These limits on guaranty fund coverage are necessary to balance the need to provide a safety net to those who would be most harmed by the insolvency of their insurance company and keep the burden of providing the safety net at an acceptable level.

Non-covered claims or the amount in excess of that covered by the IIGA would be eligible for submission of a policy owner claim against the estate of the liquidated insurer. The receiver would provide the policy owner with claim forms and set a bar date for filing of the claim. 

Typically, state guaranty funds are administered by an industry board that is elected by the guaranty fund members (that is, all companies writing licensed business in that state). There is oversight authority by a state’s commissioner of insurance, who reviews the fund’s plan of operation, and may also audit a guaranty fund. Appointment to the guaranty fund board is subject to the approval of the commissioner of insurance. 

While many of the funds are based on a model set forth by the National Association of Insurance Commissioners (NAIC), there are differences in statutes that govern the funds and their operation from state to state, including the amount of coverage provided by the fund. 



by Dr. Radut