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Flashcards in H5. Porter Deck (5):

Limitations on Guaranty fund coverage:

-Lines covered - most direct P/C policies if issued by insurers licensed to transact insurance in the state (excl. title, credit, mortgage, ocean marine, reinsurance, and surplus lines)
-Refunds of unearned premium, often with stated limit
-Maximum covered claim, except WC which is unlimited
-Claim deductible in addition to policy deductible
-Large net worth deductible
-Trigger of coverage - most state fund coverage only available for an insurer after a court has found it to be insolvent and placed in liquidation


Purpose of Guaranty Funds:

Established to protect policyholders from inability of an
insolvent insurer to pay claims; and refund a portion of the UEPR


2 Compliance Responsibilities of insurers regarding the Guaranty Funds:

1. Insurer can't use the fact that the guaranty fund exists to
help sell business
2. Needs to provide new policyholders with a guaranty fund disclaimer


Explain how Guaranty Funds Are operated:

-All insurers selling lines covered by fund automatically
become members
-Assessments are commonly made on basis of premiums
written divided along lines of insurance
-Post insolvency assessment approach: claims estimated and assessments issued after the insolvency
-Insurers may pass on assessment costs to policyholders in their rates


2 disadvantages of Guaranty Funds to insurer

1. Insurers are directly assessed for the operation of guaranty funds
2. Competition is distorted: Insurers that can aggressively
market or loosely underwrite can gain a greater share of
market (people will still purchase the insurance due to the
Guaranty Fund protection)