When Your Insurance Company Fails
The financial crisis in the United States today and the news that one of the biggest insurance company is on the brink of financial ruin, policyholders are now wondering what would happen to their insurance needs.
First, insurance companies are regulated by the state. They are backed by guaranty associations or guaranty funds at the state level. This is to back up the policy obligations of failed companies. When a company enters into a financial difficulty, the state insurance commissioner steps in and initiates a rehabilitation process. The commissioner will act as the CEO of the company and will look deep into the company’s assets and liabilities. Finding ways to maximize assets will be top priority.
There are also times when policy modification is an option. If this happens, there are several things that can happen on a case to case basis. Claims are usually paid although other types of insurance might result in lowering of guaranteed interest rates or increase in premiums. Such cases would need a court order and both parties will be able to debate on it.
Any way you see it, learning about your insurance company failing is still unsettling. You will never know what can happen. There are different scenarios so you need to weigh your options before you start panicking. Remember that when a parent company fails, it doesn’t mean that its subsidiaries will fail too.
