State Insurance Guaranty Pools

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Northern Flicker
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State Insurance Guaranty Pools

Post by Northern Flicker » Tue Jan 08, 2019 8:01 pm

There has been past discussion about State Insurance Guaranty Pools. These cover insurance company insolvencies in a given state. It has been noted that these are unfunded liabilities— the state guaranty pools will make special assessments of insurers doing business in a state to make up the shortfall in assets to cover liabilities when an insurer becomes insolvent.

I was doing some cleanup of some paper files and ran across a notice stating that in my home state the insurers are required by state law to pass these assessments on to policyholders in the state in the form of a special assessment added to premiums.

I don’t know how many state manage it this way, but I doubt it is an isolated example.
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Stinky
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Re: State Insurance Guaranty Pools

Post by Stinky » Tue Jan 08, 2019 8:46 pm

Interesting.

I worked in a life insurance company for many years, and I never saw a provision such as this. In my experience, some states allowed the insurance company to take the guaranty fund assessments as a credit against future premium tax payments. In those states, the state treasury effectively paid for the cost of guaranty funds, because of lower future premium tax collections.

In Other states, there was no offset, so the cost of guaranty funds was borne by the insurance company stockholders.

I never saw a situation where an insurer was required to increase policyholder premiums to recoup guaranty fund assessments.

OP, could you share which state had this provision?
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Stinky
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Re: State Insurance Guaranty Pools

Post by Stinky » Tue Jan 08, 2019 10:28 pm

Stinky wrote:
Tue Jan 08, 2019 8:46 pm
Interesting.

I worked in a life insurance company for many years, and I never saw a provision such as this. In my experience, some states allowed the insurance company to take the guaranty fund assessments as a credit against future premium tax payments. In those states, the state treasury effectively paid for the cost of guaranty funds, because of lower future premium tax collections.

In Other states, there was no offset, so the cost of guaranty funds was borne by the insurance company stockholders.

I never saw a situation where an insurer was required to increase policyholder premiums to recoup guaranty fund assessments.

OP, could you share which state had this provision?
I should qualify my comment above, in that my professional experience is limited to life insurance.

I've found that life insurance has different rules and regulations from both health and auto/home insurance, so there may very well be policyholder guaranty fund assessments in areas of insurance other than life.
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Northern Flicker
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Re: State Insurance Guaranty Pools

Post by Northern Flicker » Tue Jan 08, 2019 11:16 pm

The notice in question was from State Farm for auto/home. It is hard to see how a premium increase could get pushed through to, say, a SPIA holder without it just being a haircut on the payout, defeating the point of the guaranty.
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Oblivious
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Re: State Insurance Guaranty Pools

Post by Oblivious » Tue Jan 08, 2019 11:29 pm

They're very common and are insurance for insurance companies that go out of business. So if you have a homeowners policy, a hurricane comes through that causes so much damage that causes your insurance company to bankrupt, the guaranty fund steps in to pay the claims.

Think about it, when buying insurance no one ever questions whether the insurance company is charging too little where they might go bankrupt as a result. Most people just shop for the lowest price, which keeps competition up to give people reasonable prices for property/casualty insurance. The reason you don't have to think of the financial health is because of the guaranty fund. It usually is about 0-0.5% of your policy premium.

Assessments can go up, which would cause you to pay more on the next policy you purchase. I'm confused about what the question is around this, but having a Guaranty fund is a good thing and is something you're paying nearly nothing for, for the value you're getting back.

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Northern Flicker
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Re: State Insurance Guaranty Pools

Post by Northern Flicker » Tue Jan 08, 2019 11:52 pm

I am not aware of any state guaranty pools that maintain assets to cover the shortfalls of insolvent insurance companies. They will do assessments of remaining insurance companies doing business in the state. What was surprising was that a P&C insurer saying they would push such assessments through to policy holders as a separate line item. Perhaps this was required by law to protect insured customers from just getting permanent increases to cover it.
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Oblivious
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Re: State Insurance Guaranty Pools

Post by Oblivious » Wed Jan 09, 2019 12:04 am

jalbert wrote:
Tue Jan 08, 2019 11:52 pm
I am not aware of any state guaranty pools that maintain assets to cover the shortfalls of insolvent insurance companies. They will do assessments of remaining insurance companies doing business in the state. What was surprising was that a P&C insurer saying they would push such assessments through to policy holders as a separate line item. Perhaps this was required by law to protect insured customers from just getting permanent increases to cover it.
I'm not really sure on what to say to this. Insurance is a heavily regulated product on the personal lines side that's there to protect the consumer and industry. All I can say is that the above is summarizing things in a weird way that is the gist of it, but it is not really how it works. All I can say is that having guaranty funds is a good thing and benefits the consumer. You can't get assessed after you've purchased/paid for a policy, it doesn't work that way.

sport
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Re: State Insurance Guaranty Pools

Post by sport » Wed Jan 09, 2019 12:12 am

Oblivious wrote:
Tue Jan 08, 2019 11:29 pm
So if you have a homeowners policy, a hurricane comes through that causes so much damage that causes your insurance company to bankrupt, the guaranty fund steps in to pay the claims.
My understanding is that if a HO insurance company has too much business within a small area, they reinsure with other insurance companies. This is done to minimize the risk you describe. There are even reinsurance companies that specialize in providing coverage to other insurance companies.

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Northern Flicker
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Re: State Insurance Guaranty Pools

Post by Northern Flicker » Wed Jan 09, 2019 2:48 am

Reinsurance is a separate issue. When an insurance company becomes insolvent, they will be taken into receivership by the state insurance regulators, and a common outcome would be for assessments to be made of solvent insurance companies doing business in the state to make up the actuarial shortfall, and assets and policy liabilities will be transferred to solvent insurance companies who will seamlessly continue to administer the policies.

I’m aware of two health insurer insolvencies in which a judge oversaw the liquidation of assets and payment of claims to the extent they could be covered by the assets. In-network claims are a contract between providers and insurers and so the providers had to eat the shortfalls, not the patients. I don’t think the guaranty pool was even involved in those.
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scifilover
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Re: State Insurance Guaranty Pools

Post by scifilover » Wed Jan 09, 2019 9:16 am

From: caiga.org The California Insurance Guarantee Association...

"Surcharge
The CIGA plan of operation, in accordance with section §1063.14 of the California Insurance Code, requires each member insurer to recoup a sum reasonably calculated to recoup the assessment paid by the member insurer through a surcharge on premium charged for insurance policies. The amount of the surcharge shall be separately stated on either a billing or policy declaration sent to an insured. CIGA shall determine the rate of the surcharge and the collection period for each category and these shall be mandatory for all member insurers of CIGA who write business in the three categories.

To assist in the calculation of your policyholder surcharges collected, click this link for the ,Surcharge Recoupment Collected Form
."

The three categories are 1) Home and Auto, 2) Work Comp, and 3) All other

Topic Author
Northern Flicker
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Re: State Insurance Guaranty Pools

Post by Northern Flicker » Thu Jan 10, 2019 6:13 pm

All I can say is that the above is summarizing things in a weird way that is the gist of it, but it is not really how it works.
I agree it is perhaps a surprising implementation of state insurance guaranty pools, but it nonetheless seems to be how they work.
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