Legislation Gives Policyholders More Options When Insurers Go Out of Business

February 21, 2012

A California bill, AB 1734, has been introduced to provide choices to policyholders when an insurance company has become insolvent and is being liquidated by the state.

The legislation provides for disclosure of specific information relating to claims, the financial condition of the insurance company in liquidation, and the expected outcome and duration of the liquidation effort.

When an insurance company becomes insolvent its assets are transferred to the Department of Insurance’s Conservation and Liquidation Office (CLO). After the court orders a liquidation, the insurance commissioner informs the company’s policyholders, creditors, shareholders and all interested parties of the liquidation. The commissioner then sells the company’s assets, e.g., furniture, fixtures, equipment, in order to generate cash to pay policyholders’ claims and other creditors. This process often takes a decade or more.

In AB 1734 a set of procedures are established to allow policyholders to offer or deny access to information about their claims so entities who may wish to offer to buy the policyholder’s claim may contact them. This will increase the opportunities available to beneficiaries to liquidate their claims for cash much earlier in the process. This would only apply to corporate claims; individual policyholder’s information would not be made available.

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