Porter 2 Flashcards

1
Q

Purpose of Guaranty Funds:

A

Established to protect policyholders from inability of an

insolvent insurer to pay claims; and refund a portion of the UEPR

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2
Q

Limitations on Guaranty fund coverage:

A
  • Lines covered - most direct P/C policies if issued by insurers licensed to transact insurance in the state (excl. title, credit, mortgage, ocean marine, reinsurance, and surplus lines)
  • Refunds of unearned premium, often with stated limit
  • Maximum covered claim, except WC which is unlimited
  • Claim deductible in addition to policy deductible
  • Large net worth deductible
  • Trigger of coverage - most state fund coverage only available for an insurer after a court has found it to be insolvent and placed in liquidation
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3
Q

Explain how Guaranty Funds Are operated:

A

-All insurers selling lines covered by fund automatically
become members
-Assessments are commonly made on basis of premiums
written divided along lines of insurance
-Post insolvency assessment approach: claims estimated and assessments issued after the insolvency
-Insurers may pass on assessment costs to policyholders in their rates

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4
Q

2 Compliance Responsibilities of insurers regarding the

Guaranty Funds:

A
  1. Insurer can’t use the fact that the guaranty fund exists to help sell business
  2. Needs to provide new policyholders with a guaranty fund disclaimer
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5
Q

2 disadvantages of Guaranty Funds to insurers:

A
  1. Insurers are directly assessed for the operation of guaranty funds
  2. Competition is distorted: Insurers that can aggressively
    market or loosely underwrite can gain a greater share of
    market (people will still purchase the insurance due to the Guaranty Fund protection)
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