Insurer Failures: Life/Health Insurer Insolvencies and Limitations of State Guaranty Funds

GAO discussed its report on the increasing number of life/health insurance company failures and the adequacy of protection for policyholders. GAO noted that: (1) the rate of failures for life/health insurance companies has more than tripled since 1982, with 47 failures in 1989 and 27 in 1990; (2) the state guaranty funds' assessments of insurers have increased from a total of about $50 million to a total of about $465 million; (3) the cost of failures is covered initially by state guaranty funds' assessments of insurance companies, but most states allow insurers to recover their assessments through tax offsets or rate increases; (4) state coverage varies widely, and a multistate insurer's failure can result in unequal treatment of policyholders; and (5) increasing assessments lead to concerns about the capacity of the funds to handle the greater burden that could result from additional insurer failures.