Insurer Failures:

Differences in Property/Casualty Guaranty Fund Protection and Funding Limitations

GGD-92-55BR: Published: Mar 12, 1992. Publicly Released: Apr 15, 1992.

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Pursuant to a congressional request, GAO provided information on state/property casualty guaranty funds, focusing on: (1) the differences in guaranty fund protection among the states; (2) current or potential problems such funds may encounter in paying insolvent companies' claims; and (3) the statutory framework defining the guaranty fund system.

GAO found that: (1) policyholders and claimants with unpaid claims resulting from an insurance insolvency can only collect those claims from states where they meet the states' guaranty fund statute claim requirements; (2) the National Association of Insurance Commissioners (NAIC) developed a model law that specifies the types of claims that should be covered and the maximum amount of coverage for each claim type; (3) although state guaranty funds generally follow the model, states' coverage varies greatly; (4) due to this variance, policyholders and claimants receive substantially different amounts of protection, and may receive less protection than the model's claim limit; (5) a review of coverages provided by funds concluded that 29 funds meet all claim limit coverages, 4 funds set claims limits higher than the $300,00 NAIC limit, and 18 funds have lower limits than 1 or more of the NAIC claim limits; (6) although assessment levels on surviving insurers have adequately paid claims, the increasing size of insolvencies has raised questions regarding a fund's ability to pay all claims at current assessment levels if additional insolvencies were to occur; and (7) a simulation concluded that about three-fourths of the funds would be inadequate to cover claims from a company failure with first-year claims of about $4 billion.

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