On October 10, 2019, the 9th Circuit Court of Appeals issued a landmark decision holding that the California Insurance Guaranty Association (CIGA) was not a primary plan under the Medicare Secondary Payer Act (MSP) (CIGA v. Azar, 2019 WL 5076945 (9th Cir., Oct. 10, 2019) (link to 9th Cir. Opinion)). The court’s ruling alleviates CIGA’s responsibility to reimburse the Center for Medicare and Medicaid Services (CMS) for conditional payments made on behalf of workers’ compensation claimants and may also obviate its need to adhere to Medicare Set-Asides for claim settlements.
The ruling stems from a lawsuit filed by CIGA seeking to curtail conditional payment reimbursement requests from CMS that were unrelated to covered claims. CIGA asked the court for a declaratory judgment holding that 1) CIGA is not a primary plan under the MSP, 2) that CMS must adhere to the claims bar date, and 3) that CMS’s all-or-nothing billing practice is improper and must not continue. The district court found in favor of CMS on the first two issues but agreed that CMS should only seek reimbursement for conditional payments from CIGA where the diagnostic code related to a covered claim. The parties cross-appealed.
The 9th Circuit focused exclusively on the preeminent issue; whether CIGA was a primary plan under the MSP. Like the district court, the 9th Circuit examined the issue in terms of federal preemption. The court began by reviewing the MSP to determine whether CIGA could be deemed a primary plan. While MSP does not define “primary plan”, it provides examples, such as state workers’ compensation acts. The court found that CIGA shares little with state workers’ compensation laws. While it may pay workers’ compensation claims, CIGA is triggered by an insolvency, not a work-related injury. Further, the California insurance laws specifically define CIGA’s as insolvency insurance. The court cited numerous examples of CIGA being deemed an “insurer of last resort”; a term antithetical to being a primary plan.
Finding that CIGA could not be deemed a primary plan under the MSP, the court turned its attention to whether Congress intended the MSP to preempt state laws governing insurer solvency. Congressional intent is derived from the statutory language and surrounding framework. Nothing in the MSP expressly related to insurer solvency. The closest indication the court could find was that the MSP supersedes state law with respect to Medicare Advantage plans under Part C and prescription drug plans under Part D, but that Congress clarified that those provisions did not apply to state laws relating to plan solvency. Thus, the 9th Circuit reversed.
What happens next is still an open question. CMS has until November 24, 2019 to seek an en banc appeal (review by the full 9th Circuit panel of judges) and until January 8, 2020 to file a writ of certiorari to the U.S. Supreme Court. It also has the option of amending the MSP to expressly apply to guaranty funds. Until then, this ruling is good law in the 9th Circuit and persuasive elsewhere. The application of the ruling to other guaranty funds requires a state-by-state analysis, though there is benefit to be gained from coordination. The NCIGF Legal Committee will be working with members to ensure the most effective response.
If you have any questions or comments, please reach out to John Blatt (firstname.lastname@example.org).
GSI aims to assist Guaranty Funds with a suite of IT services including:
• Cloud hosting We can plan and migrate your entire IT infrastructure to the cloud.
• Application Development GSI can automate any existing paper processes in your office including collecting assessment data, proxy voting for your board, PTO forms, expense reimbursement, various UDS processes, setting up an internal intranet, Web site hosting, etc.
• IT security services Do you have an IT audit coming up? Do you have the results of an audit that you don’t know what to do with? GSI can help you prepare in the leadup to an audit and assist with remediation.
• KnowBe4 We can assist or manage your KnowBe4 training and testing.
• Monitoring GSI can setup daily security monitoring and provide executive level reports on what issues currently exist in your environment.
GSI aims to assist receivers with the extraction and conversion of claims data from an insolvent insurer. GSI can do this faster and cheaper than anyone else in the entire market. We can accomplish this because we’re a for profit subsidiary of a not for profit entity – we don’t have a bench of consultants who need to get paid nor do we incur the types of expenses that other IT consulting technology companies have. The receiver only pays for the services it uses. Furthermore, GSI isn’t looking to maintain data extraction and conversion for longer than it needs to. We look to partner with the existing company or receivership staff to ultimately transition the UDS work to them. GSI likes to step in at the early, chaotic, but crucially important parts of an insolvency to make sure data gets where it needs to go, then looks to step away as the transition becomes more orderly.
Restructuring statutes, which take the form of either company division statutes or insurance business transfers (IBTs), are gaining steam in the state legislatures. These are statutes that permit an ongoing insurance company to divest itself of certain liabilities, along with a calculated amount of assets, and relinquish any ongoing responsibility for this business. The business divested would be put into an existing or newly created insurance company. The statutes proposed typically call for a plan to be filed with and approved by the state’s commissioner of insurance. Sometimes review and approval by the court is also required. Requirements for notice to policyholders vary from state to state. The most current proposals do not limit lines of business that can be subject to divisions. Hence, types of insurance such as personal lines, workers compensation and long- term care could be involved.
At its October 2019 meeting, the NCIGF Board of Directors adopted a policy position on restructuring mechanisms. While the NCIGF takes no position on this or any other company business practice, it is concerned with the continued protection of covered policyholders and claimants in the event of insolvency. NCIGF public policy is focused on preserving guaranty fund (GF) coverage for policies and claimants where there has been a division or an IBT:
Where there was guaranty fund coverage before the division or IBT, state regulators should ensure that there is coverage after the division or IBT. A division or IBT should not reduce, eliminate or in any way impact GF coverage.
Where there was no coverage before the division or IBT, there should be no coverage after the transactions are completed. A division or IBT should not create, expand, or in any way impact GF coverage.
Guaranty fund representatives are a good resource for any guaranty fund coverage issues that arise in evaluating these transactions.
NCIGF’s complete position statement can be viewed here. Roger Schmelzer, NCIGF’s President and CEO states “our organization is focused on protecting the policyholders the guaranty fund system is intended to protect. Our position on restructuring mechanisms reflects this primary concern. Some state guaranty funds may have varying views on these statutes. In any case, we hope that regulators considering these transactions will keep the guaranty funds informed and make use of their expertise in the area of insurance insolvency.”
Background and recent developments. This concept began to take shape many years ago when Rhode Island adopted Chapter 14.5 of its insurance code known as “Voluntary Restructuring of Solvent Insurers.” The mechanism was narrowly crafted and applies to “insuring of any line(s) of business other than life, workers’ compensation, and personal lines insurance.” (See RI Statute s. 27-14.5-1(6)).
Pennsylvania also had a related law (PA Bus Corp. Law § 1951 (repealed)) that provided for division of a solvent company. The statute was used most notably in 1996 by Cigna to divide the business of its Insurance Company of North America (“INA”) unit. The newly formed entity, known as Brandywine, assumed certain run‐off blocks of business while INA continued to write new business. The law has since been repealed and replaced with the more generalized Associations Transaction Act (15 Pa.C.S.A. § 361) though its application to insurance policyholders is unclear.
In 2014, Vermont passed its Legacy Insurance Management Act (LIMA). According to the RunOff Re.Solve website (runoffresolve.com), LIMA allows a non-admitted insurer to transfer its discontinued commercial business to a third‐party company. Such a transfer would require approval from the Vermont regulator, but the law does not mandate court approval. Personal lines coverages are excluded, and policyholders can opt out of the transfer process. (See VT ST T. 8 § 7111 et seq.)
Arizona also has a business transfer law. (See AZ ST § 20-736)
Most recently, a number of division statutes have been proposed and adopted in the following states, including the following:
Connecticut: Division statute enacted in 2017
Georgia: Division statute enacted in 2018.
Illinois: Division statute enacted in 2018.
Iowa: Division statute enacted in 2019.
Oklahoma: IBT statute enacted in 2018.
Michigan: Division statute enacted in 2018
Nebraska: Proposal introduced in 2019. Did not progress.
Again, these most recent proposals are not limited to certain lines of business nor is policyholder approval required. Whether there is guaranty fund coverage for the assuming entity is also an issue of concern.
(Originally published in the Summer 2019 issue of The Insurance Receiver and is reprinted with the permission of IAIR)
A highly charged topic among insurance resolution practitioners is the obvious fact that insurance company failures are at an all-time low. As a result, inevitable questions are raised about the resources—human and financial– committed to maintaining readiness for whatever insolvency activity may come along.
These conversations are not exclusive to the United States. NCIGF Vice Chair Chad Anderson of Western Guaranty Fund Services (WGFS) and I recently returned from a meeting in Taiwan with other resolution professionals from around the world. The resounding trend of these presentations? There is a lack of insurance company failures everywhere leading to some interesting outcomes for established guarantee mechanisms. For example:
Taiwan is spending their time changing their mission to become a risk management “think tank.”
Our neighbors in Canada do a series of research papers on why companies fail and are actively counseling regulators on ways to avoid liquidations.
Guarantee structures in some countries have never had an insolvency and others have only had a few. And with an emphasis on recovery of a troubled company in most of the rest of the world, it’s doubtful there will ever be a global spike in insurance insolvencies. In the United States, the decline in insurer failures requiring guaranty fund involvement can be traced to implementation of Risk Based Capital standards and the clearer picture this measurement to regulators of a company’s potential for peril.
That insurance insolvency is not a growth business is a win-win-win proposition. Regulators have sharpened tools like RBC to give consumers security in their insurance choices; the reputation of the competitive industry remains intact and carriers pay less in assessments allowing them to grow their business through investment and product development.
These are indisputably good outcomes but beg the question about the infrastructure in place to manage a dwindling volume of insurance insolvencies. Here are a few thoughts I’ve shared with the NCIGF board and our membership:
Keep things in perspective. The property/casualty guaranty fund system is a bargain to stakeholders at around $70 million annually to operate. This is the cost of doing business to assure an effective safety net for insurance consumers. It’s not just my opinion; I often hear this point made by industry thought leaders. Besides, with 29 P/C guaranty associations already part of cost-sharing arrangements in their states, real efficiencies are already in place.
Guaranty funds have plenty to do, even without new insolvencies. Claims are being managed every single day in guaranty fund offices across the country. Many these claims are worker compensation claims that are paid out at 100 percent over the claimant’s lifetime. Professional claims managers are actively involved in in assuring that those claimants are fully served, often making the difference in the life of that person and their family. Litigation Management, Data Security and other important tasks make for a busy daily existence in support of the insurance promise and policyholders.
That there is a “resolution system” should remain the mantra of guaranty associations and insurance receivers. U.S. insurance regulation is seen as even more viable because there is a practiced and stable resolution mechanism. It’s also often forgotten that Title II of the Dodd-Frank Act expressly singles out the state-based insurance liquidation system as the designated forum for resolving an insurer failure of any size. We have no choice but to be ready.
Maintaining a strong NCIGF is imperative. While not expressly statutory, NCIGF is mentioned over 40 times in the NAIC Handbook used by insurance receivers. An effective national coordinating entity is essential for numerous reasons, all vital but none more important than driving data management and security, now the highest priority in contemporary insurance resolutions. NCIGF also does the heavy lifting in relationships with industry, regulators (both nationally and internationally) and consumers. We provide trusted expertise to public policymakers who are not that familiar with how the safety net works.
Recognition of the value the insurance industry derives from a statutory insurance resolution system is especially worthwhile when activity is subdued. Oddly, it’s the participants in the resolution mechanism itself that could do a better job acknowledging this linkage. And it’s not a tough sell. By protecting insurance policyholders, guaranty funds and insurance receivers uphold the insurance promise and provide a safety net that encourages the commercial enterprise of selling and buying insurance. The statutory resolution construct fills inevitable gaps in the larger insurance food supply chain. The system is built to work exactly this way. As a result, the insurance industry fully supports the GA system, even at times when we aren’t needed in great numbers on the front lines (like now).
NCIGF is always focused on providing operational support to our members and the entire resolution mechanism when the time comes. By looking at the big picture and addressing the right things in the right ways now, we can continue to present the P/C system as a dependable, flexible and durable consumer-protection mechanism fully capable of supporting the insurance promise as originally contemplated by policymakers and industry.
That’s why an impactful level of value-added non-insolvency engagement is not only warranted but necessary, regardless of the number of claims in the system. At NCIGF we call this “uncoupling claims from costs” and our Canadian colleague makes a presentation titled “In Times of Peace Prepare for War.” Taking a serious look at existing processes and challenging conventional wisdom is a wise and thoughtful course of action. To move these sentiments into pervasive thought will require candid, open discussions within NCIGF, regulators and the insurance industry. We are regularly having those conversations.
Readiness for the nosier times is not negotiable. Being unprepared will draw attention and someone who knows much less about the purpose of the U.S. resolution mechanism will seek changes based on limited exposure to the realities of insurance resolution. Experienced insolvency practitioners will almost certainly be unhappy with that outcome. And anyway, if insolvency pros aren’t trying to do things better, then why are we here?
“This is the Essence of What the Guaranty Funds Exist to Do…” – Brad Roeber
One of the highlights of the 2019 Fall Workshop was a panel entitled, Disaster Sight: Listening to History for Creative Problem Solving. Among the panelists was Brad Roeber, Executive Director of the California Insurance Guarantee Association (CIGA). Mr. Roeber gave a brief overview regarding a creative solution he employed in late 2018 when it came to the liquidation of Merced Property & Casualty Company, a small California Central Valley insurer impacted by the California wildfires. This is a closer look at that situation as well as a challenge from Mr. Roeber to all Guaranty Funds to secure the future of the system by leveraging creativity as well as compassion.
Robin Webb, NCIGF Communications & Member Support Manager: Brad, you’re the current Executive Director over at CIGA, tell me about stepping into that role as a former Industry representative.
Brad Roeber, Executive Director, CIGA: I served on the NCIGF Board as an industry member for a number of years so I have a fairly unique point of view, especially given that I ended up choosing to work with the guaranty funds for a living, now being the CIGA executive director. I believe in the mission very much and I thought that, at this time in our history, there was an opportunity to lead in a different way. We exist solely to serve consumers who have no place else to go. Everything that I’m doing and everything I’m encouraging my employees to do is to think about the people that are sitting there with nothing…whether it’s an injured worker in the comp world or it’s a claimant of a non-standard auto insured who has gone down or the folks up in Paradise, California who, in one day, lost everything and then a few weeks later, lost their insurance too.
Robin: And you’d only been in your role a short time when the California wildfires tore through this heavily wooded area in the Butte County? Tell me about getting creative when it came to helping those claimants from Merced who lost their homes.
Brad: Yes. Whether you call it creative solutions or just finding answers where maybe there are no obvious ones, to me that’s what we need to do. I’m not the first person who’s hired existing staff to handle an insolvency, but it goes beyond that. Now we’re leveraging those people [from Merced] who did a great job for us to do more work and keep them on the payroll longer, so there is an economic value to how we handled it. And, talking about Merced specifically, we are going to handle that estate with an administrative expense load that’s exceptionally low. And that is because we didn’t have to pay southern California salaries to those folks, and we didn’t have to pay the overhead of southern California. We paid the overhead in a little farm town in the middle of the agricultural part of the state. There are all kind of little savings like that just from being open to new possibilities. And like I’ve said, utilizing existing staff is not a new idea, but I think the way we leveraged it in this particular case was a little different.
Robin: Take us back to the very beginning. What happened with Merced?
Brad: The story of Merced is a pretty simple one. I had gotten here at the end of September 2018 and on November 8th, the fire starts. We got a call saying that there was this little central valley carrier that was a hundred years old and it was likely to go under. Most of their book of business was property and so it was pretty clear that something was going to go down. As it turns out, some of their employees knew within a week that they were done because the company had about $30 million in assets and the exposure was within the $100million range. So, we knew…it’s going to go.
Robin: In your time in the insurance world, had you ever experienced a disaster like this?
Brad: One of the things that was interesting here, and it’s a good lesson for the future of the guaranty funds, was I was among just a few people at CIGA that had ever actually been involved in a property disaster and had adjusted property claims. My experience, a lot of which was in the Midwest, was with tornadoes and things of that nature. I had been on site in multiple places where a tornado had ripped through and the houses were completely gone. There was one that happened a little east of Peoria a few years back where people were sitting at home on a Sunday morning eating breakfast and the next thing they know, the alarm is going off, they are running to the basement and the house is just gone. So, I had some pretty unique experience around those types of situations and adjusting those property claims.
Robin: When you heard about Merced, what was your first step?
Brad: I decided to go up there and see the people (and this was before the liquidation order). I went up to the Merced offices and talked with the claims staff and told them that it appeared that the company is in trouble but that the guaranty funds are the backstop for it and at CIGA I didn’t have anybody that knows how to adjust claims on property…so, would you be willing to work with us? We tried to be creative about engaging them and we set up a ‘stay bonus’ system to reward them if they stayed until the end of the insolvency.
We had our people lined up to handle everything and then it started. We went to work and began adjusting the claims. The fire had started on November 8th and right after Thanksgiving the fire finally got put out, so it burned fully for about three weeks. Then, on December 3rd the company was declared insolvent. Because of the pre-planning we had done and the fact that there was not a huge number of claims, we actually started issuing checks on that Friday, December 7th. The next week, in earnest, we were producing more checks for those folks, allowing the coverage gap to be minimal, almost nonexistent.
Robin: You mentioned specifically some creative solutions in regard to claim caps, tell me more about that.
Brad: The CIGA statute says that we could pay a maximum of $500,000 per claim for non-workers compensation claims. We talked in advance with our counsel and discussed the option of looking at the caps differently. Instead of one homeowner’s claim, we look at the homeowner’s policy in multiple parts where there are four basic coverages – dwelling, structures, contents and additional living expenses. We developed the option of treating this as four claims as opposed to one single claim.
Robin: Why was this solution so important to you?
Brad: This is the lens I was looking through: If we don’t find a creative way to deal with this part of it, then we will not represent the insurance industry as a safety net. Because of this four-coverage approach, we were able to cover the entirety of people’s claims with the exception of just a few (maybe 30-40 whose domicile exceeded the $500,000 cap). It created a productive solution out of a situation that was really awful for these people. It allowed them to move on with their lives.
Robin: And there was another area, the contents portion of the coverage, that you dealt with pretty swiftly as well, right?
Brad: Yes. When you adjust a property claim and there is contents damage, typically it’s handled by the consumer providing an inventory and the adjuster going through the list of all of the homeowner’s items and coming up with a cash value for all of those items. Then, when the consumer actually goes out and purchases those items, they provide proof, and only then can they be paid the difference. Obviously, it’s a pretty arduous process. Well, we decided to offer to pay eighty percent of whatever the contents coverage amount was, without an inventory. No questions asked. Again, that piece of it, that type of solution had been done before but not very often and not so efficiently or at such a high percentage amount. And with the exception of just a handful of claimants, we have had no complaints.
Robin: Where did the Merced employees end up?
Brad: We’ve given them additional work to do. We have other work that had been done by third-party administrators and I’m starting to feed them additional files to adjust. It saves us money and also keeps them employed. We wanted to reward them for being loyal to us and seeing this insolvency through to the end.
Robin: Thank you for sharing that story. It’s incredibly compelling.
Brad: It’s important to remember that this is not a tale of woe. This is not a story about a bunch of greedy insurance companies who try to do the wrong thing. This is a group of really well-intentioned people who have gotten educated and want to do a better job for the policyholders. The guaranty funds were there. We served these people who literally had no place else to go.
Robin: How do you balance the idea of going above and beyond to some who maybe have the mindset of not being a charity organization or taking up the mantle that their job is, in fact, to minimize the claims they pay?
Brad: I’m compelled because I’ve been on a disaster site before. The first time I went to a disaster site and looked into the eyes of one of my customers who had lost everything, that was a seminal moment for me almost fifteen years ago. At the time, I had forgotten why I’d gotten into the business – I had gotten caught up in making money and driving combined ratio and cutting claims cost and all of those things. I realized then that it wasn’t about any of that. It was about doing the right thing and taking care of these people. That was the promise. When you think about NCIGF, it’s about the promise. The promise isn’t that we make a lot of money…if it happens, then that’s great. But the promise is that we take care of people when they’ve lost everything and have no place else to go. It is a noble business.
In September, the Michigan Property and Casualty Guaranty Association announced that Jeffery Jenkins would become their new executive director. Their official announcement is below.
NCIGF reached out to Mr. Jenkins now that he has begun in the new role and he stated, “I am excited that I have started a new journey in my life here at MPCGA and look forward to being an integral part of the greater GF community. I really enjoy my new role! It has been a warm, comfortable and inviting feeling during the transition. It is extremely encouraging to see the teamwork that all of the organizations display and it is nice to see that we all are in this together with a family-like atmosphere.”
Michigan Property and Casualty Guaranty AssociationAnnounces Selection of New Executive Director
“Jeff has a wealth of industry knowledge and business acumen,” said Margaret Scheske, chairman of the MPCGA board. “The board is confident that under Jeff’s leadership the MPCGA will continue to fulfill its duty to protect policyholders and claimants against financial losses.”
In his new role, Jenkins will be responsible for the overall direction, coordination and evaluation of MPCGA’s operations and employees. He will serve as the face of MPCGA and will represent the interests of the organization, its member insurers and the welfare of impacted insureds in the state of Michigan.
“Jeff’s strong background in the property and casualty industry, passion for transparent leadership, and problem-solving approach will undoubtedly prove valuable assets to MPCGA,” said Milkint.
Jenkins most recently served as director of field property claims for The Hanover Insurance Group. He has more than 20 years of experience in the property and casualty sector. Jenkins earned a Bachelor of Arts in business administration from the University of Findlay in Findlay, Ohio, and has also earned a production management and leadership principles certificate.
“What an exciting opportunity to implement advances in new technology at MPCGA,” said Jenkins. “I look forward to working with this talented team to enhance our organization’s long-standing vision, and I am confident our collaborative work environment will serve us well to tackle new challenges in the future.”
About Michigan Property and Casualty Guaranty Association:
MPCGA is an unincorporated association of all property and casualty insurance companies authorized to transact insurance in Michigan. Membership in MPCGA is a condition for doing business in the state of Michigan. MPCGA was created by the Michigan Legislature in 1969 to protect the public against financial losses to Michigan policyholders and claimants as a result of insurance company insolvencies. MPCGA is not a state agency. It pays certain claims of insolvent insurance companies that were licensed to do business in the State of Michigan. A seven-member Board of Governors, appointed by the Director of the Department of Insurance and Financial Services (“DIFS”), oversees MPCGA. Additional information is available at http://www.mpcga.com/.
Michigan Property and Casualty Guaranty Association
The 2019 Fall Workshop took place in New Orleans on October 2-3. The educational event kicked off on that Wednesday at the historic Roosevelt Hotel and featured John Wells welcoming the membership to his home state of Louisiana. After introducing James Donelon, Commissioner of Insurance for the state, Mr. Wells handed things over to Trey Boone from eSOURCES who presented on organizational culture.
Throughout day one of the event, the NCIGF program highlighted opportunities for interaction among the community members, which included a rousing game of Jeopardy!, hosted by Chad Anderson (AKA Wink Wollery) as well as lunchtime roundtable discussion groups that covered important guaranty fund topics – Claims, IT, and Challenges for New Fund Managers. Said one participant who joined the IT roundtable, “Not only did Andrew and Jeremy answer our questions, the group of people at the table was varied and I enjoyed getting to know them better.”
Day one concluded after the group heard from NCIGF President & CEO, Roger Schmelzer and another panel entitled Disaster Sight: Listening to History for Creative Problem Solving. Mr. Schmelzer closed his President’s Report by stating, “In this version of NCIGF, with this composition of members who are so committed to the mission of the guaranty fund system, everyone can and should be heard.”
Day two of the workshop, emceed by Tom Streukens (FL), began with an interactive exercise constructed by the education committee: a cyber insolvency scenario. As members arrived in the morning, they were instructed to sit at round tables and Mr. Streukens explained the day. The scenario was rolled out, and each group took time to brainstorm, share experiences from their individual shops, and come up with next steps. The conclusion of the exercise involved each table sharing their ‘top takeaways’ with the large group. This was often met with applause and many took notes. “This exercise was excellent. The mix of experience and personalities at my table were perfect. There were many questions we could not answer, but at a minimum, this exercise drove the conversation and helped illustrate the need to keep talking about this topic and seek insight/clarification of how we would, collectively, respond to an insolvency with cyber policies”, commented one member via the 2019 Fall Workshop survey.
To see the notes from the scenario exercise as well as the PowerPoint presentations from all panels and speakers, click here.
NCIGF hosted its most recent board of directors meeting in Indianapolis last week. Among the board was Charles Renn, Executive Director of the Missouri P&C Insurance Guaranty Association. Mr. Renn attended this meeting not only as the most recent NCIGF past chairman but also marking this as his last ever NCIGF event. He presided over the board from 2017-2019, passing the gavel to Keith Bell from Travelers at the annual conference in May.
At the conclusion of the two-day board meeting, Roger Schmelzer, President & CEO of NCIGF, recognized Chuck for his 10 years of service on the board and for his incredible work overall for the guaranty fund community. As he received his certificate of appreciation, Chuck shared a powerful and heartfelt goodbye and was met with a standing ovation from all that were in attendance. He will be officially stepping into retirement on September 30 and will be succeeded by Tamara Kopp who also attended the August meeting.
Chuck wrote an open letter to the NCIGF Board of Directors and has agreed to share it here:
On June 4 Louisiana adopted legislation to define how large deductible policies are handled in an insurance liquidation. The new law tracks closely to model language adopted by NCIGF and reflects the NCIGF position that deductible collections and other recoveries are to be remitted at 100% to the guaranty funds to the extent of their claim payments.
In the context of this legislation “large deductible” policies are:
Workers compensation policies in which the insurer agrees to pay the claims from dollar one.
However, through policy endorsement, the policyholder is obligated to reimburse the insurance company up to a certain specified amount – usually upwards of $100,000. (Sometimes through special arrangement with the insurance company the policyholder pays the deductible amount in the first instance – however the insurance company always has the ultimate responsibility to pay the claim.)
These mechanisms allow the policyholder to save on premium and at the same time protect the injured worker.
Any collection issues are addressed between the policyholder and the insurance company, but the worker gets needed benefits on a timely basis. Typically, the policyholder obligation to repay is secured by collateral furnished by that policyholder.
Confusion often ensues if the insurance company goes into liquidation and an insurance guaranty fund assumes the obligations of the insolvent insurer for workers compensation cases. Statutes such as the new Louisiana law settle various issues such as 1) who is responsible for collection of the large deductible recoveries, 2) how collateral put in place to secure these obligations should be administered post-liquidation, and 3) does the recovery become a general asset of the now insolvent estate or is it remitted to the guaranty fund paying the claim to the extent of that claim payment?
According to Roger Schmelzer, NCIGF President and CEO, “these issues are important to the guaranty funds for several reasons: 1) Any confusion about the status of the various parties, such as the policyholder, the claimant, the receiver and the guaranty fund, can result in collection delays and litigation – both of which diminish available funds to reimburse the deductibles; 2) guaranty funds are a limited safety net – ultimately the cost of the guaranty fund payments is passed on to the public by various recoupment methods – having the structure in place to reimburse guaranty funds quickly on deductible payments reduces the cost to the public, and, importantly, bolsters the ability of the guaranty funds to provide seamless protection to injured workers.”
The new Louisiana law addresses all these issues and will do much to eliminate confusion and delay in future Louisiana insurance insolvencies. It’s essential elements are:
It calls for the receiver to assume collection efforts.
The receiver administers the collateral, draws down on the collateral should the policyholder fail to pay within a certain time frame, and eventually returns any excess collateral to the policyholder.
Guaranty funds receive reimbursement in full for their claim payments out of the deductible collections or collateral draw downs. (More information on this rather complex statutory scheme, and other similar laws, can be obtained by review of the new law available https://www.ncigf.org/industry/public-policy-and-legislation/.)
The other states that have adopted similar statutory changes are California, Pennsylvania, Illinois, Indiana, Michigan, Texas, New Jersey, Utah, Florida, Missouri, and West Virginia. Most follow some version of the template of the NCIGF model which has been revised over the years to reflect experience in dealing with these products in an insolvency context. The first state to enact the bill was Pennsylvania during the aftermath of the Reliance insolvency. Reliance was liquidated in 2001 and the legislation was added in 2004.
Special appreciation to John Wells, Executive Director of the Louisiana fund. John was instrumental in vetting this bill with state policymakers.
NCIGF Vice Chair Chad Anderson (WGFS) and NCIGF CEO Roger Schmelzer recently returned from the Asian International Forum of Insurance Guarantee Schemes (IFIGS) meeting held in Taipei, Taiwan. Both spoke to a roomful of 150 Public officials and academics from throughout Asia about the value of insurance guaranty funds.
Anderson delivered a robust briefing on how the U.S. property and casualty safety net works and the system’s place in state-based insurance regulation. It was an important presentation because most of the audience was not familiar with consumer protection for casualty products. Nearly all the topics addressed in the two-day meeting involved life mechanisms with an emphasis on avoiding failure altogether and efforts to assist regulators in achieving that end.
Delivering the keynote speech as chairman of IFIGS, Schmelzer outlined common objectives for all nations with policyholder protection laws; early involvement, prioritizing insurance customers and making sure regulators had a full and accurate understanding of how guaranty programs work, concluding by saying that meeting these elements will help to stabilize economies around the world.
Schmelzer pointed to deliberations anticipated later this year by international regulators (including representatives from the United States) on the ideal future state of guaranty systems worldwide. He cited these talks as a critical opportunity to help regulators generate a comprehensive body of knowledge and realistic expectations of insurance safety nets and their missions. Schmelzer also asserted that it was equally important to create an understanding that there is no single best way to protect consumers.