Insurance guaranty associations are organizations created by statute for reimbursing policy holders and beneficiaries for losses resulting from the financial impairment or insolvency of insurance companies. Members of these associations are the individual companies authorized to write particular types of insurance within a state. They are governed by a board of directors made up of representatives of the industry, the state regulator, and in some cases, policy holders. There are statutory provisions governing assessments, eligibility for payment, and maximum amount of benefits. Members are assessed following an insolvency to keep the fund primed for possible future payments. Assessments in most states, including Washington, are based on the percentage of total premium for the type of insurance written by each member.
In Washington there are two guaranty associations, one to protect property and casualty policy holders, and one for life and disability policies. Members of both associations may offset any payments made to the guaranty fund against premium taxes due over a five-year period. A member is exempt from a payment otherwise due if the payment would render them insolvent. Washington's Long-Term Care Guarantee Fund (LTC Fund) is currently supported by life and disability insurers, through the Life and Disability Insurance Guarantee Association (Association).
Insurers that are members of the Association are required to pay two classes of assessments. Class A assessments are administrative, and Class B assessments are those necessary to carry out the substantive duties of the Association. Class A assessments may either be assessed pro rata or non pro rata. Class B assessments must be made on the basis of percentage of total premiums written for that type of insurance in the state by the member. Assessments may be abated or deferred at the discretion of the Association's board of directors if immediate payment would endanger the ability of the member to meet its contractual obligations. Assessments are limited to 2 percent of the average annual premiums of the member for the past three years.
Association Members. Membership of the Association is expanded to include health care service contractors (HCSCs) and health maintenance organizations (HMOs) authorized to transact in Washington. Member insurers do not include non-risk-baring hospital or medical service organizations, or multiple employer welfare arrangements. All member insurers must be and remain members of the Association to transact business as an insurer, HCSC, or HMO in Washington.
Coverage. The persons covered by the Association is expanded to include health care providers and facilities rendering services covered under health care benefit policies or certificates of coverage. Coverage excludes persons who acquire rights to receive payments through a structured settlement factoring transaction that is in compliance with the Internal Revenue Code.
The Association does not provide coverage for:
The benefits the Association may become obligated to cover may not exceed the lesser of the contractual obligation for which the insurer is liable, or for individual policies:
Association Accounts. The Association must maintain:
Association Board. The Association's board of directors is expanded to consist of 7 to 11 member insurers.
Insurer Policies. If a member insurer is impaired, the Association may reissue any or all of the policies or contracts of the impaired insurer. If a member insurer becomes insolvent, the Association must either guarantee, assume, reissue, or reinsure the policies or contracts of the insolvent insurer, or assure payment of the contractual obligations of the insolvent insurer.
If the Association elects to issue alternative contracts, the policies or contracts must be subject to the approval of the insurance commissioner, provide benefits that are not unreasonable in relation to the premium charged, and provide coverage of a type similar to the policy or contract issued by the impaired or insolvent insurer.
Assessments. The cap on non-pro rata class A assessments of $150 per member insurer per calendar year is removed. The amount of the class B assessment, except for assessments related to long-term care insurance, must be allocated for assessment purposes between accounts, including among the sub-accounts for life insurance and annuities.
The amount of a class B assessment for long-term care insurance written by an impaired or insolvent insurer must be allocated according to a methodology included in the Association's plan of operation and approved by the insurance commissioner. The methodology must provide for 50 percent of the assessment to be allocated to disability and health member insurers and 50 percent to be allocated to life and annuity member insurers. Member insurers may consider the amounts reasonably necessary to meet assessment obligations when determining its premium rates and policy owner dividends.
Plan of Operation. The Association's plan of operation must, among other requirements:
Court Proceedings. All court proceedings involving an insolvent insurer as a party are stayed 180 days from the date an order of liquidation, rehabilitation, or conservation is final, to permit legal action to be taken by the Association.
PRO: This change is needed to protect against long term care insolvencies and it aligns the state's program with the national model act. The bill will broaden the assessment base and the assessments will be equitably distributed. Thirty other states have the same 50/50 assessment split among different types of insurers. Sharing the burden across the entire industry is important to protect policy holders.
CON: Health insurers shouldn't be assessed at the same rate as other insurers because they don't write long term care policies. There is no reciprocal benefit for health insurance.