A new model law adopted by the National Conference of Insurance Legislators (NCOIL) will create a stronger safety net for property/casualty guaranty funds nationwide.
According to legislators, the Post-Assessment Property and Liability Insurance Guaranty Association Model Act, adopted by NCOIL during its annual meeting in Las Vegas, would create a comprehensive, statutory remedy for paying the claims of certain consumers once their property/casualty insurers have been declared insolvent. The model bill responds to increasing concerns that state guaranty fund laws — although historically successful in promoting swift payment of consumer claims — were not designed for today’s complex insurance products.
“Innocent victims of bankrupt insurance companies deserve fair, timely settlement of their claims — and don’t care how they get their money,” said NCOIL Property-Casualty Insurance Committee Chair Sen. Ruth Teichman, Kan. “If state guaranty fund laws are not set up for today’s market, then legislators must step in. Have guaranty funds been effective over the years?” she asked. “Absolutely. But now NCOIL has acted to make sure they protect consumers well into the future.”
Lawmakers on the P/C Committee, which adopted the model law on Nov. 16, looked at 11 key differences between the NCOIL proposal and language contained in a 1970 National Association of Insurance Commissioners (NAIC) guaranty fund model act, and/or draft revisions to the NAIC model.
NCOIL legislators discussed whether a guaranty fund should cover business that an insolvent insurer took on before it went bankrupt; whether to ban guaranty fund coverage from people of significant financial means; the appropriate make-up of a guaranty fund’s board of directors; and the date beyond which guaranty fund claims would be disallowed.
The P/C Committee examined who should have the right to manage the operations of a guaranty fund; whether a fund should intervene in relevant lawsuits; who should control records related to guaranty fund claims; whether guaranty associations should have the final say on claims determinations; and immunity.
The Committee also added a drafting note regarding the amount of money that a guaranty fund could pay for each claim. Rather than the $300,000 per-claim limit spelled out in the model law, the drafting note would allow states to adjust the claims cap depending on cost-of-livingdifferences around the country.
The P/C Committee had considered the issue for more than one year. At the NCOIL Summer Meeting in July, members voted against including language in the model act that would overview the purpose of the legislation. The Committee reasoned that such language might inadvertently allow a court to expand the statute beyond what a legislature intended.
The NCOIL Annual Meeting was held from Nov. 14-18 at the Rio All-Suite Hotel & Casino in Las Vegas, Nev. NCOIL is an organization of state legislators whose main area of public policy interest is insurance legislation and regulation. Most legislators active in NCOIL either chair or are members of the committees responsible for insurance legislation in their respective state houses across the country.
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