Captives Don’t Belong in Ga. Guaranty Fund

January 16, 2004

A Georgia House bill requiring captive insurance companies that write
workers’ compensation coverage to be covered under state guaranty fund laws will reportedly do nothing to identify or correct their financial difficulties, but instead will unfairly shift their claims paying burden onto employers who use licensed and regulated workers’ comp insurers.

“Captives – like self-insurers, risk retention groups and surplus lines
insurers – play an important role in a state’s insurance market, often
writing coverage in markets where traditional coverage is scarce,” said Robert Herlong, Southeast regional manager for the Property Casualty Insurers Association of America (PCI). “Because of this unique role, captives are exempt from many of the regulations imposed on licensed property/casualty insurers, such as having to pay guaranty fund assessments. This bill’s misguided attempt to shore up a few financially tenuous captives does a disservice both to the captives and the state’s admitted insurers, who will have to pay their claims if they go insolvent.”

H.B. 1076, sponsored by Rep. Ben Harbin and supported by Insurance and Safety Fire Commissioner John Oxendine, would reportedly bring several captive insurers providing workers’ compensation into the state’s insolvency fund. The bill has cleared the House Insurance Committee.

“Guaranty funds are a limited payer of last resort, not an unsecured
loan for troubled unlicensed insurers,” Herlong said. “Permitting the
Commissioner to sweep the captives’ insolvency problems under the rug and into the guaranty fund does not solve the real issue – why are these entities experiencing financial difficulties?”

To place captives in the guaranty fund when they are on the brink of
insolvency is unfair to licensed workers’ comp insurers and their
policyholders that will pay the costs through higher expenses and
premiums, Herlong added. “Licensed companies are subject to financial reporting, risk-based capital tests, financial examinations, and other state regulations that captives don’t have to fulfill,” he said. “Those companies and their policyholders should not be penalized if a captive goes under.”

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