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.
- 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.