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very few companies are not in one way or another engaged in interstate commerce.
Each insurer would pay an annual fee equal to one-eighth of one percent of its net direct premiums. These fees would be continued only to the extent it would be necessary to keep the net asset value of the fund at an amount not less than two percent of the annual direct premiums written by all participating insurers. Before this cut-off the corporation would have to retire the outstanding Treasury shares amounting to $50 million which supply the initial financing.
The FIGC would be empowered to settle or adjust any claim against an insolvent member insurer. Claims for return premiums would not be allowed in excess of fifty percent of unearned premiums. The bill would require claimants to exhaust their claims against state insolvency funds before receiving payment from FIGC. No further fees or assessments under any state insolvency law would be permitted for any period during which the insurance policies of the insurer are guaranteed under this legislation.
In the case of insolvency protection under the uninsured motorist endorsement, a policyholder would first have to exahust his remedies against any applicable state insolvency fund and then against the FIGC before receiving any payment from his insurer.
It is clear, therefore, that the bill seeks to establish a single program for providing payments to those who have claims against an insolvent insurance company.
The bill grants broad examination powers to the corporation. All such examinations are required to be coordinated as far as practicable with appropriate state supervisory authorities and the National Association of Insurance Commissioners. It authorizes the corporation to terminate the guaranteed status of an insurer if it finds
(1) That the insurer is engaging in unsafe or unsound practices,
(3) The insurer has violated this law or any rule or regulation issued under it. The corporation also has power to bring cease-and-desist proceedings if it believes an insurer is engaging in an unsafe or unsound practice or is violating the law.
American Insurance Association, as previously stated, recognizes that a problem exists and a solution must be found. We have shared with this committee our analysis and conclusions with respect to the various proposals which are under consideration. It is our view that S. 2236, patterned after the Federal Deposit Insurance Corporation Act, is clearly preferable to all other proposals and we endorse this legislation.
It should be noted that S. 2236 provides a sure way to protect members of the public against the possibility of insurance company insolvency. It also prohibits the proliferation of state insolvency funds which, in our judgment, is a totally unacceptable solution. Finally, unlike all the other solutions under discussion, S. 2236 strengthens the regulatory process. It should prove to be especially helpful in preventing the interstate shifting of company assets, which has been beyond the reach of state regulatory power and which has been such a significant factor in a number of insolvencies.
We disagree with those who contend that this legislation portends the end of state regulation or that it diminishes the important role of state regulation. On the contrary, we believe it compliments and supplements state supervision. It will, in fact, strengthen state regulation by removing a long-standing source of criticism.
We have reached our decision supporting S. 2236 only after the most careful study. We are well aware that in varying degree a number of segments of the industry are opposed to this legislation. We also know that the National Association of Insurance Commissioners has adopted a resolution against this legislation. Our decision to support this bill reflects our considered judgment that the FDIC approach offers the most effective and workable solution to the insolvency problem of a business which is extensively transacted across state lines.
None........ No provision..
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11f rejected, insurer need not offer coverage on renewal unless requested.
2 Failure to file evidence of financial responsibility under Financial Responsibility Law creates rebuttable presumption that vehicle was uninsured.
3 Also covers cases where insurer denies liability.
13 Coverage may not be rejected for policies covering private passenger vehicles or pick-up trucks. May be rejected as to others.
1 Insured must elect to accept or reject offer of coverage in writing.
ai Fund distributed to insurers after deduction of administration expense.
WORKMEN'S COMPENSATION SECURITY FUNDS Arizona-Uninsured Employers and 2nd Injury Special Fund.—8 23–1065, Revised Statutes-Fund is maintained by a tax not to exceed 2% of premiums; also in no-dependency death cases, carriers shall pay $1,150 into fund. 823-907B authorizes payments out of special fund plus a 10% penalty on employer.
Connecticut.—2nd Injury & Compensation Assurance Fund—88 31-354 and 31-355-Gen. Stats.--1% of compensation paid during preceding year with payments to cease when fund reaches $100,000 and to be resumed when it falls below $100,000.
Maryland.—88 85-89, Art. 101, Maryland Code-Post-insolvency assessment, prorata, upon all insurers not to exceed 1% of workmen's compensation premiums written during preceding calendar year.
Minnesota.-8879-29, Minn. Stat. 1965. Assessment of other carriers for the payment of unpaid workmen's compensation awards of insolvent company. Prorata assessment in any one year in no case to exceed 1% of workmen's compensation premiums written during the preceding calendar year.
New Jersey.-Sec. 34 :15–103 ff. Revised Statutes of 1937. 1% of net written premiums payable bi-annually until fund, over and above liabilities, equals 5% of workmen's compensation loss reserves of all stock carriers as of December 31 next preceding; payments to be resumed when said fund falls below this figure.
New York.-Art. 6-A (88 106–109) of Workmen's Compensation Law. One percent of net written premiums payable until fund, less liabilities, equals 5% of New York Workmen's Compensation loss reserves of all stock carriers as of December 31 next preceding, or equals $2,300,000, whichever sum is greater. Payments are resumed when fund is reduced below this amount. Payments to be made quarterly.
North Carolina.-Art. 3, Chap. 97, 88 97-105–97–117, Gen. Stats. One percent of net written premiums payable bi-annually until fund over and above liabilities equals 5% of workmen's compensation loss reserves of all stock carriers as of December 31 next preceding ; payments to be resumed when said fund falls below this figure.
Oregon.—Direct Responsibility Employer's Adjustment Reserve 8 656.614, Oregon Rev. Stats.—Pro-rata assessment upon (DRE) employers sufficient to pay unpaid claims because of insolvency of surety or guarantor of employer.
Pennsylvania.-Act No. 470, Laws of 1937. One percent of net written premiums payable annually until fund, over and above liabilities, equals 5% of workmen's compensation loss reserves of stock carriers as of June 30 next preceding. Payments are to be resumed when the fund falls below this amount.
United States Longshoremen's and Harbor Worker's Act.-Special Fund—88 18 (b) and 44$1,000 paid into Fund by employer in each no-dependency death case.
Wisconsin.-Workmen's Compensation Law, Sec. 102.65. One percent of earned premiums payable annually until fund, over and above liabilities, equals 5% of the loss reserves of all stock carriers for the payment of benefits under said section as of December 31 next preceding. Payments are to be resumed when fund falls below this amount. Payments into stock fund are not to be discontinued unless said fund consists of at least $25,000 over and above its known liabilities. This fund has now been consolidated with the mutual and reciprocal funds and transformed into a temporary fund for payment of assessments into the newly created post assessment Insurance Security Fund which has broad coverage, including workmen's compensation (S.B. 525) Chapter 144, Laws of 1969. Broad guarantee provisions including workmen's compensation
California.--Act 14.2 Sec. 1063 ff. of the Insurance Code. Provides for creation of California Insurance Guarantee Association to which all insurers, with certain exceptions life, title, etc. must belong. Workmen's compensation writers included as a separate category. Post insolvency assessment limited to 1% of net direct premium written in particular category (Chapter 1347, Laws of 1969, effective August 31, 1969).
Michigan.-Secs. 7853 and 7901 ff. (compiled Laws of 1948, added by Act No. 277, Laws of 1969) creates Property and Casualty Guaranty Association to which all insurers, except life, must belong. Workmen's compensation writers included as a separate category. Post insolvency assessment limited to 1% net direct premium written in previous calendar year in particular category. Wisconsin.-Described above.
SPECIAL MANAGEMENT LEGISLATIVE BULLETIN
INSOLVENCY FUND LEGISLATION AS OF NOV, 7, 1969
State and bill No.
California: House 1310. Creates the Insurance Guarantee Association, which will assess all Law.
insurers other than life or title; post assessment, maximum 1 per
cent in year. Florida: Senate 920....... Would have created security funds for casualty, property, surety and Died.
workmen's compensation insurance. Preassessment. Senate 1523...... Would have required insurers to pay 1 percent of premiums on post
assessment basis where insurer is insolvent, to defray losses to
claimants. Maryland: Senate 199.. Makes the Motor Vehicle Laibility Security Fund applicable to physical Law.
which would assess upon insurers the amount needed to pay for
ing of all insurers writing automobile and workmen's compensation
property and workmen's compensation insurance to assume obli-
I percent in year.
which all automobile insurers must belong. Upon determination
property liability lines, payments to cease when Fund reaches
based on the Federal Deposit Insurance Corporation Act.
Do. H.R. 3671.. ...do....
Do. H.R. 6475... ....do.....
Do. Senate 2236 Would create the Federal Insurance Guaranty Corporation, applicable Hearings scheduled for
to all lines other than life, accident and health and title. Preassess. Nov. 12, 19, and 20.
ment. H.R. 13428.... ....do......
............ No action,
PROPERTY AND LIABILITY SECURITY FUNDS California.-California Insurance Guaranty Association to which all insurers, except those writing exclusively surety, credit, ocean, marine, life, title and certain other lines, must belong for purpose of providing each member with insolvency insurance. Post assessment, not more than 1% of net direct premium written in category (compensation, auto, other) in the State (Chapter 1347, Laws of 1969)
Maryland.-Motor Vehicle Security Fund-for payment of allowed claims of injured parties and policyholders arising out of motor vehicle accidents by reason of insolvency or inability of insurer to meet its insurance obligations. Preassessment 14 of 1% net direct written auto liability and physical damage premiums. (8 482A of Art. 48A, Annotated Code of Maryland)
Michigan.—Property & Casualty Guaranty Association maintained by all authorized insurers, except life, which shall discharge obligations of insolvent insurers arising out of contracts issued or payable to residents. Policy contracts covered: Auto insurance, workmen's compensation, basic property insurance, howeowners, farm owners and commercial multiple peril. Post-assessment not to exceed 1% of net direct premiums during previous calendar year. (Act 277, Acts of 1969)
New Hampshire.-Auto Assessment Association to which all auto insurers are required to belong. Post insolvency assessment for payment to residents of bodily injury liability, property damage, medical payments, U.M., physical damage and
claims for unearned premiums. Maximum assessment in any calendar year shall not exceed 3% of total amount of all net direct premiums written by all licensed auto insurers having such business in the State in said calendar year. (Chapter 349, Laws of 1969, effective June 30, 1969)
New Jersey.-Motor Vehicle Liability Security Fund for purpose of securing the benefits under policies of motor vehicle liability insurance by reason of the default of an insurer which becomes insolvent-12% of direct gross motor vehicle premiums; ceases when net value of Fund reaches $6,000,000; resumes when Fund falls below such amount. (88 39:6-92-39:6-104 NJSA)
New York.-Property & Liability Insurance Security Fund to be used in payment of allowed claims of residents by reason of the inability due to insolvency of an authorized insurer to meet its insurance obligations under generally all property and liability lines. Pre-assessment: 1% net direct written premiums until Fund reaches $200,000,000. (8 334 N.Y. Insurance Law, as amended by Chapter 189, Laws of 1969)
Wisconsin.-Wisconsin Insurance Security Fund-Applicable generally to all lines. Fund divided into three separate accounts, life, disability and all other covered insurance, for purposes of paying claims of residents arising out of policy issued by authorized insurer and which claim has been approved in the liquidation of the insurer issuing the policy. Post assessment, maximum 2% of the assessable premiums (Chapter 144, Laws of 1969, effective 8/22/69)