Life insurers are clashing with health insurers over what should happen to long-duration insurance policies when the issuers fail and state guaranty associations step in.
Health insurers want the default to be for protection to be limited to a state’s guaranty limits. They want to see receivers to get court permission before using a failed insurer’s own assets to fill in holes in guaranty fund protection.
Life insurers want the default to be for the receiver to use the insolvent insurer’s assets to fill in guaranty protection holes, to make sure the policyholders get coverage close to what the policyholders were originally promised.
Members of the National Association of Insurance Commissioners’ Receivership and Insolvency Task Force talked about receivers’ use of a failed insurer’s assets during a conference call meeting, and at an in-person meeting in November.
The task force has included an account of the discussions in a meeting packet for an upcoming in-person session set to take place April 7, at the NAIC’s spring national meeting in Orlando, Florida.
Task force members began to talk about the topic in response to a Pennsylvania Supreme Court ruling on Warrantech Consumer Products Services Inc. v. Reliance Insurance Company in Liquidation.
The court held that an insolvent insurer should deny any claims received more than 30 days after liquidation, unless the claims were covered by the guaranty association, and that the assets of the insolvent insurer should not be used to pay any claims above guaranty fund limits more than 30 days after the liquidation.
State Guaranty Associations
State guaranty associations take over paying the claims for insolvent insurers, using a combination of a failed insurer’s assets, investment earnings on the failed insurer’s assets, and assessment payments from guaranty association members. States usually require certain insurers to join certain types of guaranty associations.
The association members usually do not pay large guaranty association premiums to prefund guaranty fund obligations. Instead, they pay large assessments to cover the obligations that come due when insurers fail.