The below information is being provided as a refresher for those advisors who want to have a crisp and clear response if their customers ask about carrier strength in a time of crisis. Our goal is to fine tune your professional response when a client asks.
Carrier insolvencies are governed by state law, rather than federal bankruptcy law. In addition, the insolvency is governed by the law of the state in which the insurer is domesticated, but the laws of the various states in which an insurer conducted business may also be implicated. Consequently, during the takeover and administration of an insolvent insurer, it is important for the receiver to consider the laws of those states.
Most states have enacted statutes that govern the conservation, rehabilitation and liquidation of insurance companies that are patterned after one of three models acts that have been adopted by the NAIC over the years:
1. The Uniform Insurers Liquidation Act (“Uniform Act”);
2. The Insurers Rehabilitation and Liquidation Model Act (“Liquidation Model Act”
3. The Insurer Receivership Model Act (“IRMA”).
The above model acts are collectively known as the “NAIC Model Acts.” Because of their widespread influence, the NAIC Model Acts are basis for takeover and administration of troubled or insolvent insurers. Even so, the laws of the individual states may deviate from the models, in whole or part, and certain types of insurers—typically service provider organizations (e.g., PPOs, HMOs)—may not, in some jurisdictions, be subject to the laws that apply to impaired or insolvent insurers.
Receivership proceedings are usually commenced against insolvent or financially impaired insurer in the insurer’s domiciliary state (the state in which the insurer is incorporated) and in specific courts within that state, generally either the court in the judicial district encompassing the state’s capital or the judicial district of the insurer’s principal office.
The NAIC Model Acts require that the chief insurance regulator of the insurer’s domiciliary state be appointed receiver of the insurer to administer the receivership under court supervision. The chief insurance regulator in the individual states may be referred to as commissioner, treasurer, superintendent or director. For purposes of this article, the term “regulator” is used to encompass all such officials. If the insurer is an “alien” insurer admitted to the U.S. market through a “port of entry,” the state through which the insurer was admitted will administer the receivership.
What To Do If Your Life Insurance Company Goes Bankrupt
Although bankruptcy for life insurance companies is rare because of reinsurance, the best way to safeguard yourself from a life insurance company going bankrupt is to choose a licensed insurer in good financial standing. It is important that know upfront the chances of your insurance company going bankrupt so that you can make wise informed decisions. The ASA Group can provide you with a ratings report of your carriers to help evaluate each carriers financial strength.
NAIC Reports: Troubled Companies
One of the primary objectives of insurance regulators is to identify, as early as possible, insurance companies that are showing signs of becoming financially troubled so corrective action can be taken to protect policyholders, claimants, and creditors from financial loss.