Guaranty Fund Protection in New York State
The Life and Health Insurance Company Guaranty Corporation of New York provides consumers with a measure of protection against the insolvency of a life insurer; health insurer; or property/casualty insurer that writes health insurance. The Guaranty Fund also provides protection for policyowners of long term care insurance. The Guaranty Fund does not apply to a municipal cooperative health benefit plan, employee welfare fund, fraternal benefit society, an institution of higher education, or a continuing care retirement community. It also does not apply to government programs, such as Medicare, Medicaid, Child Health Plus, TRICARE, or the Federal Employees Program.
The Guaranty Fund is a not-for-profit New York corporation that provides funds to New York residents and certain nonresident policy-owners, insureds, health care providers, beneficiaries, annuitants, payees, and assignees in the event of the insolvency of a licensed (or formerly licensed) life insurer, health insurer, or property/casualty insurer that writes health insurance.
The Guaranty Fund is managed by a board of directors, consisting of representatives of member insurers and the Superintendent of Financial Services. Every life insurer, health insurer, or property/casualty insurer that writes health insurance that is licensed or formerly licensed to do business in New York State must be a member of the Guaranty Fund.
The Guaranty Fund is funded through assessments against member insurers made after a member insurer is declared insolvent by a court of law. These funds are used to pay valid claims, as well as administrative expenses.
What Happens When an Insurance Company has Financial Difficulty?
Through the New York Liquidation Bureau, the Superintendent, as receiver, may seek an order from the New York State Supreme Court allowing the Liquidation Bureau to take over an insurer's operations if certain circumstances exist that affect an insurer’s financial stability.
Once the Liquidation Bureau steps in to take over an insurer, official notice is sent out explaining the circumstances that made the action necessary.
Rehabilitation vs. Liquidation
Supervision of an insurer may take one of two forms: rehabilitation or liquidation.
In rehabilitation, the Liquidation Bureau attempts to return the insurer to a financially stable condition. In liquidation, the Liquidation Bureau takes steps toward the eventual dissolution of the insurer. Both approaches are designed to protect consumers and creditors.
If an insurer is domiciled in another state and is placed in rehabilitation or liquidation in that state, then the Superintendent may seek a court order allowing the Superintendent to take control of the insurer’s assets in New York.
Protections and Limits on Protection
The Guaranty Fund provides up to $500,000 of coverage to a life insurance policy owner, individual annuity (such as a single premium deferred annuity) contract holder or individual accident and health insurance (including long term care insurance) policyholder, insured, or health care provider, or any beneficiary, assignee, or payee of the foregoing. There is also coverage for group and blanket accident, health, and accident and health insurance policies.
Funding Agreements and Group Annuity Contracts
The Guaranty Fund also provides some limited coverage to funding agreements and group annuity contracts. Group annuity contracts, including guaranteed interest contracts and funding agreements, are frequently used for the investment of the assets of pension, profit-sharing and salary reduction plans. Most often it is the plan trustee or sponsor who makes the investment. The extent of Guaranty Fund protection for an individual participant depends upon the insurer's obligations as set forth in the contract.
If a contract does not guarantee annuity benefits with respect to any specific individual identified in the contract, then the Guaranty Fund will provide coverage for the total invested with the insurer, up to $1 million. If the contract guarantees annuity benefits with respect to specific individuals identified in the contract, then the Guaranty Fund provides up to $500,000 coverage to New York residents and certain nonresidents.
With respect to agreements that do not fund benefits under employee benefit plans, the Guaranty Fund provides aggregate coverage of up to $500,000. Specific information about the type of contract through which protection is provided should be obtained from the employer.
Choose Carefully
Choose your insurer carefully. Although the Guaranty Fund provides some protection, there are limitations on coverage, so do not ignore an insurer’s financial condition and assume that you will be fully protected if the insurer fails to meet its obligations.
When selecting an insurance policy, you are also selecting an insurance company and you may wish to know how stable that company is financially. Many firms rate the financial soundness of insurance companies. Some provide the ratings free while others charge a fee, ranging from a small fee for an online rating to a larger amount for quarterly reports. Each firm has a different rating scale and firms may differ in the conclusions they reach about a specific insurance company. Therefore, you may wish to check with more than one firm before selecting an insurance company.
Listed below are some of the firms that rate insurance companies along with their phone numbers and web addresses:
Fitch Ratings
1-800-75-FITCH
www.fitchratings.com
Moody’s Investors Service
1-212-553-0377
www.moodys.com
Standard & Poor’s
1-212-512-3108
www.standardandpoors.com
About the Department of Financial Services
One of the Department’s most important responsibilities is regulating the activities of insurers doing business in New York State to ensure that the promises made in insurance policies and annuity contracts are fulfilled. To that end, each insurer licensed in New York submits comprehensive annual and quarterly reports on its financial condition to the Department. In addition, the Department's insurance examiners conduct regular on-site examinations of all New York domestic insurers to evaluate their financial condition, and their underwriting and claims-handling practices. Insurers domiciled outside of New York State but doing business in this state are subject to on-site examinations by their domiciliary insurance regulators.
If you have questions about Guaranty Fund protections and your policy or contract, then review the Frequently Asked Questions section of the Guaranty Fund website to see if the answer is there. To determine if an insurer is licensed in New York, use our Insurance Company Search function. If you still need help; or have a question about a New York-licensed insurer, then please contact the Department.