Tag: large deductible

With NCIGF Help, NAIC Makes More Progress on Large Deductibles

Roger Schmelzer Leave a comment

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.

NCIGF Sees Progress at NAIC on LD and Troubled Co Regulation

Roger Schmelzer Leave a comment

NCIGF closed out 2018 on a very high note.  Regulators adopted very positive recommendations governing large deductible insolvencies, including that states be encouraged to adopt statutes that grant the receiver the authority to collect deductible recoveries.  If no statute is in place receivers are encouraged to execute an agreement with the guaranty funds to enable this process.  The Working Group noted that two large deductible model statutes are available – the NAIC and the NCIGF versions. 

While the issue is not quite wrapped up (NCIGF will be involved in continued discussions regarding the ultimate ownership of the deductible asset and the drafting of specific language for the Receivers Handbook) this progress is attributable the hard work of a number of our members.

Likewise, financial regulators invited NCIGF and NOLHGA to comment on the NAIC Troubled Company Handbook.  Our comments were supportive (and included some fine-tuning based on member liquidation experience) because the proposed revisions to the Handbook would improve guidance to regulators on issues NCIGF members have found especially challenging:

  • early communication with guaranty funds and pre-liquidation planning,
  • regulator attention to the condition and availability of digital data in a troubled company,
  • info on service arrangements (TPAs and MGAs),
  • gathering information on the type and location of collateral, such as that intended to secure large deductible obligations  

Especially impressive is the attention given to the importance of digital data in contemporary insolvencies.  There now appears to be universal agreement that this is a very critical element to a successful liquidation process and key to the collaboration between guaranty funds and receivers.

To be successful, NCIGF served as the “trusted expert” and the definitive source of information on insurance insolvency and its consequences.   As a result, we have enjoyed great cooperation from regulators on these issues, both of which matter to on a daily basis to NCIGF members and the policyholders you serve.  We will build on these developments in the coming year!