Topic:
INSURANCE (GENERAL); BANKRUPTCY;
Location:
INSURANCE - HEALTH;

OLR Research Report


August 27, 2004

 

2004-R-0695

INSURANCE GUARANTY FUNDS

By: Janet L. Kaminski, Associate Legislative Attorney

You asked how the state protects insureds and claimants when an insurance company files for bankruptcy and whether the available “insolvency pool” refunds unearned premiums to insureds.

SUMMARY

Connecticut has a property and casualty insurance guaranty fund and a life and health insurance guaranty fund (CGS 38a-836 et seq.). Each insurance company licensed to issue coverage - with the exceptions prescribed by law - must belong to the insurance guaranty association for the lines of insurance it writes.

If an insurance company defaults, the guaranty association pays valid claims of policyholders and other claimants, up to the dollar limits of the policy subject to maximums set by state law. Property and casualty policyholders may receive partial refunds of unearned premiums.

A detailed explanation of the guaranty associations (enclosed) is available on the Connecticut Insurance Department's Web site, www.ct.gov/cid.

CONNECTICUT INSURANCE GUARANTY ASSOCIATION

A guaranty association is a safety net for consumers affected by an insurance company's insolvency or financial impairment. Connecticut has two guaranty associations: one for property and casualty insurance and one for life and health insurance. Each insurance company licensed to issue coverage in Connecticut, except those exempted by state law, must belong to the guaranty association related to the lines of insurance it writes. The guaranty associations assess each member insurer to fund operations, including valid claims payments.

Property and Casualty Guaranty Association

The association pays valid property and casualty claims, including auto, fire, homeowners, commercial property, workers' compensation, and general liability, up to the coverage provided in the applicable insurance policy or the dollar limit set by state law, whichever is less. The association covers Connecticut residents and non-resident first-party claims concerning property permanently located in Connecticut. It does not include surplus lines insurers, unauthorized insurers, and insurers not licensed to sell property and casualty insurance in Connecticut.

Limits. By law, most claims are subject to a $300,000 maximum. There is no dollar limit for workers' compensation claims.

Premium Refund. The association will refund 50% of a policyholder's unearned premium, up to $2,000 per policy. Unearned premium is the premium paid for a portion of a policy period for which coverage was not received.

Life and Health Guaranty Association

The association pays valid life, health, and annuity claims up to the coverage provided in the applicable insurance policy or the dollar limit set by state law, whichever is less. The association covers those who were insured by a company licensed in the state and, at the time of the declared impairment or insolvency, were Connecticut residents. It does not include health maintenance organizations, fraternal benefit societies, unauthorized insurers, self-funded plans, and insurers not licensed to sell life and health insurance in Connecticut.

Limits. By law, individuals are subject to an overall claim limit of $500,000 and the following per claim maximums: (1) death benefit - $300,000 ($500,000 effective October 1, 2004, PA 04-17), (2) health - $500,000, (3) life insurance policy cash value - $100,000, and (4) annuities - $100,000. Unallocated annuities and corporate-owned life insurance are each limited to $5,000,000 per contractholder.

Premium Refund. There is no refund of unearned premiums separate from the above benefits.

PAYMENT OF CLAIMS

The guaranty association's payment of claims is coordinated with the Connecticut Insurance Department. The insurance commissioner or a court of competent jurisdiction finding financial impairment or insolvency may trigger the associations' payment of claims.

MORE INFORMATION

A detailed explanation of the guaranty associations (enclosed) is available on the Connecticut Insurance Department's Web site, www.ct.gov/cid.

Call the insurance department or the guaranty associations with additional questions at the following telephone numbers:

1. Connecticut Insurance Department Consumer Affairs – (860) 297-3800 or toll-free 1 (800) 203-3447

2. Property and Casualty Guaranty Association – 1 (800) 852-2003

3. Life and Health Guaranty Association – (860) 647-1054

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