Guaranty association

Last updated

Guaranty associations are organizations which guarantee insurance policies in the event of an insolvency event.

Contents

History

All 50 states, Puerto Rico, the United States Virgin Islands (property/casualty only) and the District of Columbia have a guaranty mechanism in place for the payment of covered claims arising from the insolvency of insurers licensed in their state. Before the creation of guaranty associations, a typical claimant could have waited for years for payment of a claim and then still receive only a fraction of what was due under the terms of the policy or contract. Guaranty associations, subject to statutory limitations, were created to alleviate these problems and ensure the stability of the insurance market.

NAIC,policy briefing [1]

Guaranty associations were created to aid consumers in the event of an insurance company becoming insolvent during the claims process.

Funding

In general, guaranty associations are funded by a small portion of insurers' profits. [2]

Collectives and associations

The National Organization of Life and Health Insurance Guaranty Associations coordinates multi-state guaranty efforts in the United States. [3]

Legislation

The National Association of Insurance Commissioners has proposed the State Life and Health Insurance Guaranty Association Act. [2] [4]

Annuities

Major insolvencies have occurred at least 62 times since the conspicuous collapse of the Executive Life Insurance Company in 1991. [5]

Annuity contracts are protected against insurance company insolvency up to a specific dollar limit, often $100,000, but as high as $500,000 in New York, [6] New Jersey, [7] and the state of Washington. [8] California is the only state that has a limit less than 100%; the limit is 80% up to $300,000. [9] This protection is not insurance. When an insolvency occurs, the guaranty association steps in to protect annuity holders, and decides what to do on a case-by-case basis. Sometimes the contracts will be taken over and fulfilled by a solvent insurance company.

A state guaranty association is not a government agency, but states usually require insurance companies to belong to it as a condition of being licensed to do business. The guaranty associations of the fifty states are members of a national umbrella association, the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA).

A difference between guaranty association protection and the protection e.g. of bank accounts by FDIC, credit union accounts by NCUA, and brokerage accounts by SIPC, is that it is difficult for consumers to learn about this protection. Usually, state law prohibits insurance agents and companies from using the guaranty association in any advertising and agents are prohibited by statute from using this Web site or the existence of the guaranty association as an inducement to purchase insurance. Presumably this is a response to concerns by stronger insurance companies about moral hazard.

By location

United States

There is at least one guaranty association in all 50 states as of 2015. [1] Many states have multiple guaranty associations, each specific to the type of insurance covered.

California

The California Insurance Guarantee Association [10] and California Life & Health Insurance Guarantee Association [11] serves the state of California.

Florida

In Florida, the guaranty associations are the Florida Insurance Guaranty Association, [12] Florida Health Maintenance Organization Consumer Assistance Plan, Florida Life and Health Insurance Guaranty Association, and Florida Workers' Compensation Insurance Guaranty Association. [13]

Michigan

The Michigan Life & Health Insurance Guaranty Association (MLHIGA) [14] is a nonprofit association of life and health insurance companies authorized to write life insurance, annuities or health insurance in the state of Michigan.

Texas

The state designated guaranty associations in Texas are the Texas Property and Casualty Insurance Guaranty Association, Texas Certified Self-Insurer Guaranty Association, Texas Life and Health Insurance Guaranty Association, Texas Self-Insurance Group Guaranty Fund, and the Texas Title Insurance Guaranty Association.

Related Research Articles

<span class="mw-page-title-main">Insurance</span> Equitable transfer of the risk of a loss, from one entity to another in exchange for payment

Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

The Transamerica Corporation is an American holding company for various life insurance companies and investment firms operating primarily in the United States, offering life and supplemental health insurance, investments, and retirement services. The company has major offices located in Baltimore, Maryland; Cedar Rapids, Iowa; Denver, Colorado; Norwood, Massachusetts; Exton, Pennsylvania; Harrison, New York; Johns Creek, Georgia; Plano, Texas; and St. Petersburg, Florida. Additional affiliated offices are located throughout the United States. In 1999, it became an independent subsidiary of multinational company Aegon.

A structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum. As part of the negotiations, a structured settlement may be offered by the defendant or requested by the plaintiff. Ultimately both parties must agree on the terms of settlement. A settlement may allow the parties to a lawsuit to reduce legal and other costs by avoiding trial. Structured settlements are most widely used in the United States, but are also utilized in Canada, England and Australia.

Guarantee Security Life Insurance Company, or GSLIC, represented one of the most severe cases of insurance fraud in Florida history. According to the Florida Insurance Commissioner:

[GSLIC] was, almost from the beginning, a massive fraud, aided and abetted by blue-ribbon brokers and licensed professionals motivated by their own self-interest. The fraud at Guaranteed Security was a carefully orchestrated bank robbery. But the thieves disguised themselves with the help of accountants and brokers and lawyers rather than wearing silk-stocking masks.

<span class="mw-page-title-main">Blue Cross Blue Shield Association</span> Federation of 36 separate United States health insurance organizations and companies

Blue Cross Blue Shield Association is a federation, or supraorganization, of, in 2022, 34 independent and locally operated BCBSA companies that provide health insurance in the United States to more than 115 million people. It was formed in 1982 from the merger of its two namesake organizations: Blue Cross was founded in 1929 and became the Blue Cross Association in 1960, while Blue Shield emerged in 1939 and the Blue Shield Association was created in 1948.

In the United States, an annuity is a financial product which offers tax-deferred growth and which usually offers benefits such as an income for life. Typically these are offered as structured (insurance) products that each state approves and regulates in which case they are designed using a mortality table and mainly guaranteed by a life insurer. There are many different varieties of annuities sold by carriers. In a typical scenario, an investor will make a single cash premium to own an annuity. After the policy is issued the owner may elect to annuitize the contract for a chosen period of time. This process is called annuitization and can also provide a predictable, guaranteed stream of future income during retirement until the death of the annuitant. Alternatively, an investor can defer annuitizing their contract to get larger payments later, hedge long-term care cost increases, or maximize a lump sum death benefit for a named beneficiary.

Mortgage insurance is an insurance policy which compensates lenders or investors in mortgage-backed securities for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. The policy is also known as a mortgage indemnity guarantee (MIG), particularly in the UK.

Bond insurance, also known as "financial guaranty insurance", is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security. It is a form of "credit enhancement" that generally results in the rating of the insured security being the higher of (i) the claims-paying rating of the insurer or (ii) the rating the bond would have without insurance.

Executive Life Insurance Company (ELIC) was once the largest life insurance company in California. Its financial problems and subsequent insolvency in April 1991 shocked its policyholders and the financial world.

The New York State Insurance Department (NYSID) was the state agency responsible for supervising and regulating all insurance business in New York State. It was regarded in the industry as one of the most state-of-the-art insurance regulatory agencies.

Insurance in the United States refers to the market for risk in the United States, the world's largest insurance market by premium volume. According to Swiss Re, of the $6.861 trillion of global direct premiums written worldwide in 2021, $2.719 trillion (39.6%) were written in the United States.

The National Organization of Life and Health Insurance Guaranty Associations is a voluntary, U.S. association made up of the life and health insurance guaranty associations of all 50 states and the District of Columbia. NOLHGA was founded in 1983 to coordinate the efforts of state guaranty associations to provide protection to policyholders when their multi-state life or health insurance company becomes insolvent. The organization is based in Herndon, Virginia.

Fixed annuities are insurance products which protect against loss and generally offer fixed rates of return. The rates are typically based on the current interest rate environment. They are offered by licensed and regulated insurance companies. State insurance/insolvency funds guarantees vary from state to state, and may not cover 100% of the Annuity Value. For example, in California the fund will cover "80% not to exceed $250,000."

<span class="mw-page-title-main">F&G</span> American insurance company

F&G Annuities & Life, Inc., previously known as Fidelity and Guaranty Life Insurance Company is an American financial company, primarily providing annuities and life insurance. The company was founded in 1959 and is based in Des Moines, Iowa.

The New Jersey Department of Banking and Insurance (DOBI) is one of 15 principal departments in New Jersey government. The department's mission is to regulate the banking, insurance and real estate industries in a professional and timely manner that protects and educates consumers and promotes the growth, financial stability and efficiency of these industries. The Commissioner of DOBI is Marlene Caride.

Insurance regulatory law is the body of statutory law, administrative regulations and jurisprudence that governs and regulates the insurance industry and those engaged in the business of insurance. Insurance regulatory law is primarily enforced through regulations, rules and directives by state insurance departments as authorized and directed by statutory law enacted by the state legislatures. However, federal law, court decisions and administrative adjudications also play an important role.

Assuris is a nonprofit organization under Canadian federal regulation to protect policyholders of life insurance instruments if a life insurance company becomes insolvent. It is designed to allow a block of policies to be transferred to a solvent company in which the policies will continue to be honoured. The Office of the Superintendent of Financial Institutions states, "Assuris' mission is to mitigate the impact on Canadian policyholders of the financial failure of a life insurance company."

The Nonadmitted and Reinsurance Reform Act of 2010 is a United States law regulating the sale of insurance in states where the insurer is usually not authorized to sell insurance. It prevents states other than the home state of a U.S. insurance company from imposing regulations or taxes on the sale of nonadmitted insurance.

Property and casualty insurance guaranty funds are part of the property and casualty guaranty fund system, a non-profit, state-based, statutorily-created insurance consumer protection system that protects policyholders if an insurer goes bankrupt.

The term secondary market annuity is a misnomer. Certain salespeople use it as a term to describe an investment in factored structured settlement payment rights. The financial instrument that certain salespeople call a "secondary market annuity" comes about when a structured settlement factoring company buys certain structured settlement payment rights. The originating structured settlement factoring company may then further assign the rights (or subsets of thoe rights to investors for monetary consideration. The factoring company is not an insurance company and the investors not paying a premium to an insurance company. The investment that some salespeople call a secondary market annuity does not meet the definition of annuity under the insurance law for many states and does not enjoy the statutory protections.

References

  1. 1 2 "Guaranty Associations".
  2. 1 2 NAIC - Guaranty Associations
  3. ↑ NOLHGA
  4. ↑ State Life and Health Insurance Guaranty Association Act
  5. ↑ "Archived copy". Archived from the original on 2015-08-31. Retrieved 2015-10-13.{{cite web}}: CS1 maint: archived copy as title (link)
  6. ↑ "Life Insurance Company Guaranty Corporation of New York- Frequently Asked Questions". Archived from the original on 2007-11-24. Retrieved 2015-10-13.
  7. ↑ "New Jersey Life & Health Insurance Guaranty Association- Frequently Asked Questions". Archived from the original on 2007-11-24. Retrieved 2015-10-13.
  8. ↑ "Washington Life & Disability Insurance Guaranty Association- Frequently Asked Questions". Archived from the original on 2007-12-15. Retrieved 2015-10-13.
  9. ↑ "State Guarantee Funds". annuityadvantage.com. Retrieved February 28, 2015.
  10. ↑ "California Insurance Guarantee Association" . Retrieved December 3, 2018.
  11. ↑ "California Life & Health Insurance Guarantee Association" . Retrieved December 3, 2018.
  12. ↑ "What is FIGA?". Tower Hill Insurance. 2013-03-26. Retrieved 2015-10-13.
  13. ↑ Florida Guaranty Funds and Associations
  14. ↑ "Michigan Life & Health Insurance Guaranty Association" . Retrieved 17 April 2017.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.