Workers Comp Carriers Go Bad – Fund For That
Do Workers Comp carriers go bad that often? Bankrupt companies and insolvent insurance carriers are part of doing business nowadays in the world of property/casualty insurance. There are many reasons for this even though the “economy” is often blamed for every downturn.
Insolvent insurance carriers are usually discovered and monitored long before they shut down. Many state insurance departments will put an insurance carrier into some type of receivership and then monitor the carrier to see if they can pull the company up by the bootstraps out of receivership.
Many times, though, the insurance carrier cannot keep enough in reserves to pay claims. One of the bellwether figures of bad tidings is an insurance company that is operating at 15% or less in reserved funds to pay claims. This is especially true in Workers Compensation.
If the state Insurance Commissioner decides the carrier can no longer keep its head above water the carrier will be unceremoniously shut down. What happens to all of the pending claims the carrier was handling? In almost all cases, there is a fund for that situation.
Carriers and most of the insureds indirectly have paid into some type of guaranty fund. The fund’s purpose it to pay another carrier/Third Party Administrator (TPA) to handle the files or to take them in-house and have them handled by a guaranty funds claims staff.
One of the assumed complications is the injured employees, medical providers, and any type of service provider receiving timely payments. There is a minor to major (up to six months) delay in providing the benefits.
A guaranty fund is at least in existence to adjust the files properly. An example of a guaranty fund is the North Carolina Insurance Guaranty Association (NCIGA). If you follow the link and then check on insolvencies, there is a listing of insurance carriers that went under in 2008.
The surprising revelation is that most of the insurance carriers on the list were predominantly WC insurance carriers.
Each state has some type of insurance company backup such as NCIGA. In 2011, state guaranty funds assessed insurers $289.4 million to pay for insolvencies. That number covers all insurance carriers and not just WC carriers.
Next up – What happens when self-insurers go under?
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