Workers Comp Guaranty Funds – Silent Running
Workers Comp Guaranty funds become one of the most critical areas for employers, employees, and medical providers whenever the unthinkable happens in the claim process.
Some states refer to Workers Comp guaranty funds as guaranty associations. Each state has its own specific rules/laws on the process of liquidating a failed insurer.
The National Conference of Insurance Guaranty Funds (NCIGF) has a great video on how guaranty funds work overall.
What are Workers Comp Guaranty Funds?
Guaranty Funds are called many different names depending on the jurisdiction (state). These organizations operate in the background until the unthinkable happens with a carrier. According to the National Association of Insurance Commissioners (NAIC):
All 50 states, Puerto Rico, the United States Virgin Islands (property/casualty only), and the District of Columbia have a guaranty mechanism in place for the payment of covered claims arising from the insolvency of insurers licensed in their state. Before the creation of guaranty associations, a typical claimant could have waited for years for payment of a claim and then still receive only a fraction of what was due under the terms of the policy or contract. Guaranty associations, subject to statutory limitations, were created to alleviate these problems and ensure the stability of the insurance market.
How Are Guaranty Funds Funded?
The funding for these critical organizations comes from essentially every Workers Comp policy. If you would like to see it, pull out your Workers Comp policy and look for State Fund assessment or similar language. The surcharge is usually a small percentage of the policy.
How Do Claims End Up In A Guaranty Fund (Association)?
The usual process starts with a review of a carrier by a State Insurance Commissioner’s office. These reviews occur at certain time periods. The failing carrier sometimes will contact the Insurance Commissioner’s office in case of a serious default.
The Insurance Commissioner may put the carrier directly into rehabilitation. Some carriers have come out of rehabilitation temporarily. A few have returned to regular operations on a permanent basis. Unfortunately, most carriers do not return from rehabilitation and are placed into receivership.
Receivership equates to the insolvency (bankruptcy) of an insurance carrier. If you would like to see how many carriers have gone into receivership for just one state, check out this listing by Florida of where to find the Third Party Administrator (TPA) that has taken over the claims handling for the Workers Comp Guaranty Fund.
Usually, the Guaranty Funds subcontract out their claims to a TPA for future handling.
Workers Comp Guaranty Funds = Safety Nets
The safety net function provides necessary critical assistance for:
- Injured workers – the benefit payments may be delayed for a short time. The Fund’s choice of TPAs takes over as the carrier (of sorts) to pay applicable benefits on a file. The injured worker will likely receive a letter from the Fund or TPA letting them know that their benefits are guaranteed even though the carrier is no longer in business.
- company does not have to go “out-of-pocket” to pay benefits to their injured employees.
- may receive a refund for part of their premium from the failed carrier
- Medical and other providers – see the above-injured workers section. The providers may not receive a letter from the guaranty fund depending on the state.
The workers comp guaranty funds are silent running organizations that sometimes do not receive enough credit for their very critical function in the claims handling process.