What You Need to Know
- The United States has separate guaranty associations for the life sector and for the property and casualty sector.
- The NOLHGA president says no life and health insurers of major significance have failed because of either the 2008 financial crisis or the COVID-19 pandemic.
- He said designers of LTCI issuer restructuring mechanisms need to avoid saddling society with the risk of an increased number of insolvencies.
A representative for the organizations that protect customers against life and health insurer insolvencies wants policymakers to think carefully about long-term care insurance company restructuring rules.
Peter Gallanis, the president of the National Organization of Life and Health Insurance Guaranty Associations, told state insurance lawmakers this past summer that he would like to be talking more to them about efforts to develop rules for LTCI issuer restructuring efforts.
The challenge is “how to be able to do that in a way that accomplishes good but doesn’t saddle society with the risk of an increased number of insolvencies,” Gallanis said at a National Council of Insurance Legislators meeting session in Boston, according to draft meeting minutes included in a materials packet for NCOIL’s upcoming meeting in Scottsdale, Arizona.
Every state and the District of Columbia use guaranty associations to protect insurance policyholders against the risk of issuer insolvencies.
States have separate guaranty associations for life, health and annuity issuers and for issuers of property and casualty coverage.
The life, health and annuity guaranty associations formed the National Organization of Life and Health Guaranty Associations in 1983. Gallanis has been the president of NOLHGA since 1999.
Many consumers have never heard of guaranty associations, Even many insurance professionals are vague about how the associations work.
Most life and health guaranty associations rely mainly on the premium revenue flowing into insolvent insurers, and on assessments from solvent insurers, to make good on the guarantees.
States protect the solvent insurers by capping how much insurance coverage a guaranty association will protect, and by capping how much any one insurer can be required to pay for guaranty association assessments in any given year.
But guaranty associations want consumers and their insurance advisors to look carefully at insurance company finances before buying policies. To avoid increasing “moral hazard,” or the risk that customers will rely on guaranty association protection to avoid having to think about insurers’ soundness, states often limit what insurers and agents can tell consumers about the guaranty associations.