Insurance regulation in a nutshell

(f)Title VI – Insolvency Protection

Title VI provides for protection for policy obligations of failed insurers. The NIA requires that a National Insurer become a member of the relevant state guaranty association in each “qualified state” in which it does business and pay assessments to that association – the state life guaranty association for National Life Insurers and the state property/casualty guaranty association for National Property/Casualty Insurers. The Commissioner is to make a determination of whether a state is a “qualified state” based on criteria set forth in the NIA and to publish a list of qualified and non-qualified states. The NIA requires that the Commissioner publish a list of qualified states for Title VI guaranty fund coverage purposes not later than three years after the date of enactment of the Act. If a National Insurer or state insurer fails and has outstanding obligations under policies in a qualified state, the relevant state guaranty association in that qualified state will respond as to policies affording coverage in that state.
If there is one or more state that is not a qualified state, the NIA requires that the Commissioner establish a National Insurance Guaranty Corporation (“NIGC”) whose members are all National Insurers and state insurers doing business in a state that is not a qualified state. Members exclude entities such as a health maintenance organization, a fraternal benefit society, a surplus lines insurer, a risk retention group and another non-admitted or unlicensed insurer. The NIGC will provide benefits to policyholders of a National Insurer and a state insurer that is doing business in a state that is not a qualified state and is placed in receivership, whether by the Commissioner under NIA Title V or a state insurance regulator under a state insurance insolvency law. In the case of life lines of insurance, the Commissioner must establish, by regulation, the lines of insurance covered, the scope of coverage, defenses, exclusions, and the coverage limits on benefits for policyholders. These regulations must be substantially similar to the NAIC Life and Health Insurance Guaranty Association Model Act as in effect on the date of introduction of the NIA. However, the NIA provides for express provisions regarding coverage exclusions and benefits which are patterned after the NAIC model law. In the case of property/casualty lines of insurance, the NIA includes express provisions regarding the lines of insurance covered, the scope of coverage, exclusions, and the coverage limits on benefits for policyholders.