The Alliance of American Insurers is urging the Alabama Legislature to pass a bill that would alleviate a shortfall in the state’s fund that pays policyholder claims in the case of an insurance company insolvency.
The bill, HB 577, would allow the Alabama Insurance Guaranty Association (AIGA) to increase its assessment on insurers writing workers compensation insurance in the state from one percent of an insurer’s net premiums written to two percent for five years.
“Even in financially tough times, insurers operating in Alabama want to step up to the plate and not leave the state’s employers and injured workers holding the bag for unpaid liabilities in case the AIGA is overrun with claims,” said William Stander, government affairs representative for the Alliance’s Southeast Region. “Such a scenario is a distinct possibility due to existing insurer insolvencies and the prospect of additional insolvencies.”
Stander, who is based in Tallahassee, Fla., noted that a legislative logjam has delayed action on this important bill, creating a potential problem.
“We don’t see the logic in letting political differences get in the way of sound public policy,” he said. “The insurance industry has a long history of making claimants of insolvent insurers whole, and this bill will continue this proud tradition.”
Stander added that HB 577’s two-percent cap “is consistent with laws in the majority of other states, and is recommended by a model bill adopted by the National Association of Insurance Commissioners.”
By law, every state has a guaranty fund to pay the policy claims of insolvent insurers. As in other states, the AIGA is funded through assessments on all other solvent insurers doing business in Alabama. The AIGA steps into the shoes of the insolvent insurer(s) and pays its claims up to the statutory limits. In this way claimants are paid up front by the AIGA, rather than having to wait many years for payment out of their insolvent insurer’s estate.
In a worst-case scenario, where the claims on the AIGA outstrip its assessment capability, injured workers could find their claims pro-rated, delaying receipt of due compensation and even reimbursement for necessary medical care.
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