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South Carolina Guaranty Association Notice Emphasizes Limitations

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The South Carolina Department of Insurance will soon require life insurers and health insurers to provide a standardized guaranty association notice for all new coverage holders.

The notice requirement applies to annuity purchases as well as to purchases of products such as life insurance, major medical insurance and accident insurance, the department announced earlier this month, in Bulletin Number 2020-11: New Guaranty Association Notice Requirement.

A life insurer or health insurer will have to provide the guaranty association notice every time it delivers a policy or contract to policy owner, contract owner certificate holder and enrollee, according to the bulletin.

Resources

  • A copy of South Carolina’s Bulletin 2020-11: New Guaranty Association Requirement, is available here.
  • An article about insurance regulator discussions about guaranty association notices is available here.

The new guaranty association notice delivery requirement is set to take effect in mid-February.

Like other states, South Carolina has a guaranty association that provides life and health policyholders and annuity contract holders with some protection against the failure of an insurer.

The South Carolina Life and Accident and Health Insurance Guaranty Association (SCLAHIGA) does not maintain reserves. It relies on assessments of members to raise the funds needed to provide protection.

The rules governing SCLAHIGA and other guaranty associations cap the amount of benefits guaranteed, and state laws and regulations put limits on guaranty association assessment amounts.

The limitations mean that consumers affected by the failure of a large insurer, or consumers caught up in a wave of insurer failures, could have to wait years, or longer, to get all of the help offered by a guaranty association.

The insurers that belong to the guaranty associations usually have argued that consumers and agents should help enforce market discipline, and avoid letting shaky companies grow by offering great deals by looking carefully at insurers’ finances. Insurers have objected to any notice requirements that might encourage consumers to rely on guaranty associations to bail out insurers.

The new South Carolina notice acknowledges the existence of SCLAHIGA but emphasizes the limitations of the association’s protection.

The South Carolina department warns in the notice, in capital letters, in boldface type, “COVERAGE MAY NOT BE AVAILABLE FOR YOUR POLICY.”

“Coverage is generally conditioned upon residence in this state,” the department says in the notice. “Other conditions that may preclude or exclude coverage are described in this notice. Even if coverage is provided, there are significant limits and exclusions. ”

The department says, in a list of some of the protection exclusions, that SCLAHIGA does not provide coverage for “ a portion of a policy or contract or part thereof not guaranteed by the member insurer, or under which the risk is borne by the policy or contract owner.”

SCLAHIGA will decline to protect a consumer against loss of policy or contract value tied to inflation protection features, variable crediting rate features, or other features with value changes that exceed an average rate, according to the notice.

The list of exclusions described in the notice also includes health coverage provided through multiple employer welfare arrangements (MEWAs)  and employer stop-loss insurance arrangements.

— Read What Happens If Health Insurers Fail?on ThinkAdvisor.

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