Guaranty association
Guaranty associations are organizations which guarantee insurance policies in the event of an insolvency event.
History
Guaranty associations were created to aid consumers in the event of an insurance company becoming insolvent during the claims process.Funding
In general, guaranty associations are funded by a small portion of insurers' profits.Collectives and associations
The National Organization of Life and [Health Insurance Guaranty Associations] coordinates multi-state guaranty efforts in the United States.Legislation
The National Association of Insurance Commissioners has proposed the State Life and Health Insurance Guaranty Association Act.Annuities
Major insolvencies have occurred at least 62 times since the conspicuous collapse of the Executive Life Insurance Company in 1991.Annuity contracts are protected against insurance company insolvency up to a specific dollar limit, often $100,000, but as high as $500,000 in New York, New Jersey, and the state of Washington. California is the only state that has a limit less than 100%; the limit is 80% up to $300,000. This protection is not insurance. When an insolvency occurs, the guaranty association steps in to protect annuity holders, and decides what to do on a case-by-case basis. Sometimes the contracts will be taken over and fulfilled by a solvent insurance company.
A state guaranty association is not a government agency, but states usually require insurance companies to belong to it as a condition of being licensed to do business. The guaranty associations of the fifty states are members of a national umbrella association, the National Organization of Life and Health Insurance Guaranty Associations.
A difference between guaranty association protection and the protection e.g. of bank accounts by FDIC, credit union accounts by NCUA, and brokerage accounts by SIPC, is that it is difficult for consumers to learn about this protection. Usually, state law prohibits insurance agents and companies from using the guaranty association in any advertising and agents are prohibited by statute from using this Web site or the existence of the guaranty association as an inducement to purchase insurance. Presumably this is a response to concerns by stronger insurance companies about moral hazard.