With NCIGF Help, NAIC Makes More Progress on Large Deductibles

Guaranty funds and receivers have been in conflict for more than 10 years over treatment of large deductible products written by companies that later go into liquidation. In liquidation, confusion can arise about who is responsible for collection of deductible recoveries and how collateral put in place secure collections should be managed. Additionally, there has been some disagreement among insurance company receivers and guaranty associations about how much of the deductible collection and collateral draw down should be returned to the guaranty funds to the extent of their claim payments. More recently, there has been a concerted effort by receiver and guaranty funds to resolve these issues. Two significant developments came about during the Austin NAIC meeting in December:

  • Regulators approved revisions to the Receivers’ Handbook to clarify best practices on various administrative issues relating to deductibles.
  • Taking it a step further, the Receivership Large Deductible Workers’ Compensation (E) Working group exposed a draft guideline on alternative approaches for statutory provisions on large deductibles in receivership. One alternative calls for the deductible recoveries and collateral drawdowns to be treated as general assets of the insolvent estate. The other, the approach endorsed by the NCIGF, calls for the recoveries and drawdowns to be remitted in full to the guaranty funds to the extent of their claim payments.

Both LD results came about due to purposefully more positive interactions based on a commonality of concerns between the parties. NCIGF was seen not as a rival but indeed as the “trusted expert” that we have tried to position ourselves as in all matters of public policy development when we are engaged. Barb Cox had the lead on this issue and received support from Rowe Snider and former FL manager Sandy Robinson. We owe them all a debt of thanks.

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