You have an auto accident, but you have insurance. You've religiously paid your premiums, so when you arrive to pick up your repaired vehicle at the auto body shop, you are shocked to discover that your auto insurance company has gone under, the shop hasn't been paid, and it won't release your car.
At this point, despair sets in, but is soon replaced with hope in the form of the guaranty fund systems in place to cover claims of insolvent companies. Guaranty funds have been established for property-andcasualty insurance and life and health insurance. Guaranty funds assess their member insurance companies based on a percentage of the net direct premiums (gross premiums received from policies issued, less returned premiums and dividends paid to policyholders in the state). In Indiana, companies pay a maximum of 1 percent per year. Two local women are at the forefront of these nearly unknown insurance safeguards.
Barb Cox, 48, is vice president of legal and regulatory affairs and corporate secretary of the National Conference of Insurance Guaranty Funds, an association that provides support and coordination to state property-and-casualty guaranty funds. NCIGF is based in Indianapolis.
Jan Funk, 55, is executive director of the Indiana Insurance Guaranty Association, which oversees property-and-casualty insurance issues, and is also executive director of the Indiana Life and Health Insurance Guaranty Association. Both are housed in the same Indianapolis office.
Casualty insurance covers losses that are the result of an unforeseen accident. Property insurance covers risks to property, such as fire, theft and some weather damage. Since its inception nearly 40 years ago, the national property-and-casualty guaranty system has paid about $21 billion in claims.
Every state has a guaranty fund to protect policyholders by stepping in to pay covered claims of insolvent insurers, and every state fund belongs to NCIGF. State laws require that all licensed propertyand-casualty insurance companies be members of and be protected by the guaranty funds in states where they are licensed to do business.
Cox's organization doesn't pay claims, but she is considered one of the nation's leading experts on property-and-casualty guaranty fund law and helps the state funds coordinate multistate insolvencies.
"Our main concern is getting claims paid," Cox said. "I'm an attorney, so I enjoy reviewing the case law."
She has been helping do just that at NCIGF for 14 years. She joined the organization as a law clerk while earning her degree at the Indiana University School of Law in Indianapolis. Cox helps interpret statutory proposals across the country and makes recommendations, sometimes testifying as an industry expert.
"Barb is involved nationwide working ... all over the country. She just attacks what needs to be done and her enthusiasm breeds that in others," said Dave Edwards, president of the Western Guaranty Fund Services, which covers six Western states. Edwards has worked with Cox for about 10 years.
When an insurance company is liquidated, Cox explained, its remaining assets are collected to help pay outstanding claims. The guaranty funds also assess members' insurance companies to raise additional money needed to pay outstanding claims. Those insurance companies can then recoup those assessments in a variety of ways, sometimes by raising rates for policyholders or by exercising tax incentives.
Many companies are based in one state and write policies in others. This creates a situation where multiple guaranty funds become involved.
The reasons for insolvency are many: poor management, embezzlement and excessive expansion, Cox said. Other times medical malpractice and natural disasters like Hurricane Katrina and Hurricane Andrew overwhelm insurers.
Funk, with the Indiana Insurance Guaranty Association, offers other explanations for life and health insurers: "They may have poorly priced their products or they didn't research their market well enough. For every company that has gone into liquidation, there has been a different reason."
The guaranty funds will pay claims on policies that have not lapsed and only up to what is outlined by state statutes-"caps" fixed by the state. For example, a policy may have coverage for $1 million in damages, but most states-including Indiana-cap guaranty coverage at $300,000. Workers' Compensation claims are the exception to the caps and are paid in full in most states.
Life, health insurance also has
guaranty funds in place
Life and health insurance are covered separately from property and casualty, although still under the authority of the state agencies and guaranty fund organizations. When insurers become insolvent, these policies are often transferred to viable companies rather than canceled. Health insurance policies often have a provision for cancellation, so they may not be covered by guaranty funds.
The National Organization of Life and Health Insurance Guaranty Associations, based in Herndon, Va., is the umbrella organization formed in 1983 to help state member guaranty associates coordinate their efforts when a life or health insurance company insolvency affects policyholders.
Funk deals with both types of guaranty funds. She, like Cox, is an attorney who finds the best part of the job is helping people.
"I like dealing with and helping consumers," she said. "They're the ones whose policy no longer exists, and we help them get covered claims paid ... . Sometimes a company hasn't paid for six to nine months, and we work to get that done."
In the life and health insurance field, when a company goes out of business, the state guaranty association obtains money to continue coverage and pay claims from member insurance companies writing the same lines of insurance as the insolvent company, she explained. Each state's guaranty association spells out what types of policies are covered. Health maintenance organizations are often not covered and many states do not cover guaranteed investment contracts, a debt instrument issued by an insurance company that is often bought for retirement plans. Coverage also varies for retirement-plan annuity contracts.
It's important for consumers to know that, even if an insurance company goes out of business, keep paying the premiums. That money goes into the guaranty association that will provide continuing coverage. If the policy lapses, customers won't be covered by the guaranty fund system.
Just as in property and casualty insurance, there are caps in health and life funds.
Funk, who said "there's never a dull day" at her job, says she frequently receives calls from family members who have uncovered deceased relatives' policies and want to know if they are still valid.
"Sometimes the policy is valid, sometimes the company has gone under and sometimes the policy has been transferred to a healthy company," Funk said. She suggests people start such research at the Indiana Department of Insurance's Web site, www.in.gov/idoi.
The National Organization of Life and Health Insurance Guaranty Associations offers more information on its Web site, www.nolhga.com, about policy coverage and caps state by state.