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Why You Should Worry if Your Insurer Fails

Why You Should Worry if Your Insurer Fails
November 7, 2012 tfirestine

A CFO Magazine article this month perpetuates a widely held belief – if your insurance company fails the state will bail you out. In many cases, especially for our professional liability clients, this is not true.

1) The Limits are Not Enough
State Guarantee Funds generally provide $300k-$500k of coverage for claims made under policies of insolvent carriers and a small (generally $10,000) return premium if the carrier fails mid-policy term. This works for homeowners and small businesses, but not for large or specialty insurance policies.

2) Not Everyone Has Access to State Funds
In many cases the Guarantee Funds are not available to begin with. Many professional liability insureds have “non-admitted” coverage which is not insured by these state funds. In the event that a non-admitted insurance company goes under, the policy holders are without a back-stop.

3) Firms May be Assessed for Past Policies
Large or sophisticated companies may find insurance through Captives, Risk Retention Groups or other pooling programs not regulated by the states. If one of these entities lacks adequate capital, they have the right to assess insureds retroactively if the pooling company fails, magnifying the risk.

Contact Calculated Risk Advisors today to discuss the financial protection your insurance policy is providing. Carrier solvency is an important factor when buying an insurance policy that many insureds ignore.