Frequently Asked Questions (FAQs)
What is the Montana Insurance Guaranty Association (MIGA)?
MIGA is part of a non-profit, state-based, statutorily-created system that pays certain covered claims of insolvent insurance companies. By paying these claims, guaranty associations protect policyholders and claimants.
Guaranty associations are active in every state, the District of Columbia, Puerto Rico and the Virgin Islands. State laws require that licensed property and casualty insurance companies belong to the guaranty associations in all states where they are licensed to do business.
A guaranty association system also exists in Colorado for the life, health and annuity insurance industry; but they operate independently from the property and casualty system. This information concerns only the property and casualty guaranty association.
What is the role of the guaranty associations?
Guaranty associations ease the burden on policyholders and claimants of an insolvent insurer by immediately stepping in to assume responsibility for most policy claims following the insolvency. The coverage guaranty associations provide is fixed by policy language and state law; they do not offer a “replacement policy.”
By virtue of the authority given to the guaranty associations by state law, they are able to provide two important benefits: prompt payment of covered claims and payment of the full value of covered claims up to the limits set by the policy or state law.
How prevalent are insurance insolvencies?
The potential failure of insurance companies, like the potential failure of all businesses, is an unfortunate, but inevitable, part of doing business in a free-market system. Since inception of the property and casualty guaranty association system, there have been about 600 insolvencies. In all, the system has paid out about $24.2 billion.
If my insurance company is insolvent, why isn’t it in bankruptcy?
Insurance is a state regulated industry and many federal statutes, including bankruptcy laws, do not apply to them. When an insurance company becomes insolvent, the company's estate is administered, in its state of domicile, by the Commissioner of Insurance, as liquidator, and overseen by a state court.
Where do Insurance Guaranty Associations get the money to pay the claims?
The associations are largely funded by industry assessments, which are collected following insolvencies. These assessments raise funds to pay claims and administrative and other costs related to the association’s claim paying activities.
MIGA's assessments are capped at 2.0% of a company's net direct premium for the previous year. The other sources of funding are recoveries from distributions of the insolvent insurance companies and government backed investment income.
How are association assessments computed?
Association assessments are computed and billed based on the immediate needs of the claims it is obligated to pay. Claim files come in from the insolvent insurance company; the adjusters review them and set appropriate reserves on those files. (Reserves are the projected ultimate liability under terms of a given policy.)
What happens when a company becomes insolvent and is in liquidation?
Liquidation is similar to bankruptcy. When a company is liquidated, the Liquidator (also referred to as the Receiver), collects the assets of the company and verifies the liabilities such as claim payments and bills. The Liquidator then develops a plan to distribute the company’s assets according to the law and submits the plan to the Court for approval.
In most cases, an estate will not yield sufficient money to pay claims in full; and most are not able to pay claims in a timely manner. For this reason, the guaranty association and other state guaranty associations step in (depending on the number of states in which the failed company wrote business) to cover certain claims. The estate’s creditors not covered by the guaranty associations usually receive only partial payment on their claims.
Should I get a new insurance policy if my insurer becomes insolvent?
Yes. Most liquidation orders cancel all policies within a certain time period after liquidation, typically 30 days. You will need to obtain coverage with another insurance company. However, guaranty associations do not recommend any particular company. You may contact any licensed insurance agent to get the names of other insurers.
If my policy has been terminated as a result of my insurance company’s order of liquidation, will the guaranty association provide me a new policy?
The purpose of the guaranty association is to protect policyholders and claimants from losses due to unpaid claims against policies issued by the insolvent insurance company. Guaranty funds cannot sell insurance policies. To obtain new coverage, you will need to contact a licensed insurance carrier or an insurance agent or broker.
Am I covered by the guaranty association if I purchased my policy from an unlicensed carrier?
No. Guaranty associations cover only licensed insurers. Companies not licensed in the your state, surplus lines carriers, managed care plans, preferred provider organizations (PPOs), Health Maintenance Organizations (HMOs) and self insured plans may not be covered under the property and casualty guaranty association statutes. If you purchased coverage from one of these entities, and the company is now insolvent, you may file a claim with the Liquidator. There may also be other guaranty associations that may provide coverage for policies issued by these types of organizations. Your State Department of Insurance can provide you additional information.
What is the status of my claim?
The processing and payment of pending covered claims will be made by the guaranty association, subject to the lesser of policy limits or the association’s maximum cap.
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What is a covered claim?
A covered claim is defined in the insurance guaranty association statute as: an unpaid claim, including one of unearned premiums, which arises out of, and is within the coverage, and not in excess of, the applicable limits of an insurance policy.
To be covered by the insurance guaranty association, a number of conditions must be met. At a minimum, the claim must:
- Be unpaid- that is, the claim must not have been previously paid by the insurance carrier or another party.
- Exist before the insolvency or arise within 30 days after the Order of Liquidation- the claim must arise while the policy is still in force.
- Be on a policy written by an insolvent insurer that was licensed to do business in the state, and in a line of business covered by the guaranty association. Policies sold by companies that are not members of the guaranty association are not covered.
- Be made against or by an insured who is a resident of the state or, for workers compensation claims, made by a claimant who is a resident of the state, or be for damage to property located in the state.
- Be filed with the guaranty association before the claims cut-off date. Guaranty association laws establish claims cut-off dates. Your claim must be filed before that date in order to be covered.
- Not be covered by other insurance. if there is other insurance from which your claim can be paid, you must first exhaust that coverage before the guaranty fund will pay any portion of the claim.
Are there limits on the amount that the guaranty association will pay?
Yes. If your insurance company has been declared insolvent, covered claims will be paid by the guaranty association up the limits (cap) prescribed by state statutes and the applicable policy. Although there is no maximum for workers compensation claims, the maximum amount MIGA can pay on other claims is $300,000. You may file a claim against the assets of the insurance company estate for amounts over that cap that are still within the limits of the applicable policy. The Receiver will send proof of claim forms and instructions for filing a claim.
Claims not covered by the guaranty association may be claims against the remaining assets (estate) of the insolvent insurance company and will be considered in the liquidation process.
How long does a policyholder have to wait to receive a payment from the guaranty association?
It varies, but claim payments begin as soon as possible once a company is ordered to be liquidated. The guaranty association, coordinating with the receivers of the liquidating companies, works hard to avoid delays but in some instances, delays may occur.
Does the guaranty association pay all claims of an insolvent insurer?
No. The associations are designed as a safety net to pay certain claims arising out of policies issued by licensed insurance companies. The associations may not pay non-policy claims or claims of self-insured groups or other entities that are exempt from participation in the guaranty association system. These limits on guaranty association coverage are necessary to balance the need to provide a safety net to those who would be most harmed by the insolvency of their insurance company and keep the burden of providing the safety net at an acceptable level.
Guaranty association coverage is limited to licensed insurers (the members of the guaranty associations that, in turn, pay insolvency-related assessments.) When a licensed insurance company becomes insolvent, the guaranty association pays eligible claims; but a company does not have guaranty association coverage if it is writing non-admitted or unlicensed products, such as surplus lines or is a self-insurer covered in the non-admitted market.
In addition, although most claims are covered by guaranty associations, coverage for a few types of claims may be excluded.
These limits on guaranty association coverage are necessary to balance the need to provide a safety net to those who would be most harmed by the insolvency of an insurance company and keep the burden of providing the safety net at an acceptable level.
Who regulates Montana Insurance Guaranty Association (MIGA)?
MIGA is governed by a Board of Directors that is elected by guaranty association members (that is, all companies writing licensed business in the state). There is also oversight authority by the Montana Insurance Department, which reviews the association's plan of operation, and may also audit the guaranty association.
Are all of the state guaranty associations the same?
While many of the associations are based on a model set forth by the National Association of Insurance Commissioners (NAIC), there are differences in statutes that govern the associations and their operation from state to state, including the amount of coverage provided by the association.
When can I expect CIGA to pay my unearned premium claim?
MIGA will pay unearned premium claims after the Receiver completes its processing of the policy records and sends the unearned premium record to MIGA. This may take several weeks or even months depending on the condition of the data at the insolvent insurance company.
I am a service provider or vendor of the insolvent company. Will the guaranty association pay my outstanding invoices?
After an order of liquidation is entered by the Court, the Receiver assumes responsibility for marshalling all of the assets of the insolvent company, liquidating the assets and recommending to the Court payment of liabilities as those assets allow. All “covered claims” which are amounts payable under an insurance policy of an insolvent company are transferred to the associations for the express purpose of avoiding excessive delay in the payment to claimants or policyholders. Therefore, most associations are not responsible for outstanding service provider or vendor invoices as these liabilities of the insolvent entity are not “covered claims” under the statute. You are, however, not without recourse as these outstanding invoices may be evaluated for payment by the Receiver.
If my insurance company is in liquidation, which guaranty association should I contact with questions regarding my claim?
In most instances, the guaranty association for your state of residence will be responsible for your claims. However, if your claim relates to property located in another state, that state's guaranty association will generally have responsibility for the claim.