|
|
What happens when a company you count on to protect your possessions — or even your life — fails?
Unfortunately, you can’t just go and withdraw your money as soon as you hear about brewing problems. It’s not a bank where you can rest assured you will get back at least the federally insured amount of $250,000.
In the insurance industry, each state maintains its independence and operates its own system of regulation. Each has a regulator for the industry who is also a member of the National Association of Insurance Commissioners (NAIC). Through this group, much of the regulation of the industry is agreed upon common lines.
An insurer may be based in one state or have multiple state licenses, but be domiciled for regulatory purposes in another state. The domicile state is the lead state under normal circumstances for any regulatory actions.
The regulator monitors insurers performance through the financial reporting process. If an insurer fails to meet the required financial standards, the regulator may take steps, up to and including seizing control of an insurer. The principal responsibility of the insurance regulator is to act to protect the best interests of policyholders. The regulator is not required to consider shareholders, bondholders, or any other debtors when looking at solvency issues.
While insurance companies don’t have any guaranties at the federal level, they do have state-backed insurance guaranty associations. The states have established them to help pay claims to policyholders of failed insurance companies. However, there are several cautions which you must be aware of with respect to this coverage:
1. Most of the guaranty associations do not set aside funds in advance. Rather, states require contributions from other insurance companies after an insolvency occurs.
2.There can be an unacceptably long delay before claims are paid.
3. Each state has different levels and types of coverage, often governed by legislation. They’re unique to that state and can sometimes conflict with coverage of other states. Moreover, most state guaranty funds will not cover title, surety, credit, mortgage guarantee, or ocean marine insurance.
Bottom line: If an insurer fails, it may be awhile for you to get your claim processed and get your money to fix your home or pay bills. But just how often do insurers fail?
Since Weiss started rating insurance companies in 1989, we’ve seen 633 rated insurers fail. As you can see from the graph below, a majority of them were rated “D” or “E” by Weiss at the time of failure.
If your carrier has failed and you need more information, we recommend you contact your state insurance commissioner. To help make things easier for you, here is a list of the appropriate regulatory bodies in all 50 states, Washington D.C., Puerto Rico, and the U.S. Virgin Islands:
The bottom line is that you can still get your claims paid even after your insurer fails, but it might take a while. So, we recommend you check an insurer’s Weiss safety rating before you start doing business with them. With only a 0.02% chance of an insurer rated “A” or “B” failing in any one year, you can see why we favor those over insurers rated “D” or “E”. In addition to our ratings, be sure to learn more about your insurer’s state guaranty funds.
Think Safety,
Gavin Magor
Insurance Insights Edition, By Gavin Magor, Senior Financial Analyst Gavin has more than 30 years of international experience in credit-risk management, commercial lending and insurance, banking and stock analysis and holds an MBA. Gavin oversees the Weiss ratings process, developing the methodology for Weiss’ Sovereign Debt and Global Bank Ratings. Gavin has appeared on both radio and television, including ABC and NBC as an expert in insurance, bank and stock ratings and has been quoted by CNBC, The New York Times, Los Angeles Times, and Reuters as well as several regional newspapers and trade media. |
