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LTCI Policyholders May Get Broader Guaranty Association Protection

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The National Association of Insurance Commissioners has put its full weight behind efforts to broaden the base of support for the policyholders of long-term care insurance (LTCI) issuers that fail.

The NAIC last week approved amendments to the Life and Health Guaranty Association Model Act (Model Number 520) during a conference call meeting, officials said in an approval announcement.

If an LTCI issuer goes out of business in the future, the amendments could help the guaranty associations collect cash from life and annuity issuers, not just health insurance issuers, when the associations are trying to make good on the failed issuer’s obligations to policyholders.

(Related: Long-Term Care Insurer Pain May Hit More Companies

States set up guaranty associations to protect policyholders against the risk of insurer failure. Most associations get the cash they use to protect the policyholders only when a member insurer becomes insolvent. The associations do not normally charge enough dues to build up large standing reserves.

Traditionally, state insurance regulators have classified LTCI coverage as a health insurance line. Guaranty associations have imposed assessments only on the health insurance company members when LTCI issuers have failed, even though the biggest LTCI issuers have been better known for their life and annuity products than for their health insurance products.

The new amendments let guaranty associations impose assessments on life and annuity issuers, as well as health insurance issuers, when member companies that have written LTCI coverage go broke.

Another new amendment calls for health maintenance organizations (HMOs) to join the guaranty associations. Some states regulate HMOs and health insurance companies separately. In the past, some of those states have kept HMOs out of their insurance company guaranty associations.

The NAIC is a group for state insurance regulators. Its models, and model changes, do not normally have a direct effect on state insurance laws or regulations, but states often start with NAIC models when drafting their own proposals.

—Read Firm Proposes Long-Term Care Insurance Run-Off Program on ThinkAdvisor.

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