Which entity pays covered claims and helps prevent financial losses to claimants and policyowners when an insurer becomes insolvent?

Which entity pays covered claims and helps prevent financial losses to claimants and policyowners when an insurer becomes insolvent?

• A. The Federal Reserve
• B. The State Insurance Department
• C. The Insurance Guaranty Corporation
• D. The National Association of Insurance Commissioners

Answer: (C)

When an insurer becomes insolvent, the responsibility for paying covered claims and protecting policyowners from financial loss falls to state-level guaranty mechanisms funded by assessments on solvent insurers. These guaranty associations step in to cover claims up to certain limits and to prevent wide-scale financial harm to claimants, continuing coverage where the company left off. This is the function of the Insurance Guaranty Corporation, which exists to pay covered claims and help limit losses for policyowners and claimants. The Federal Reserve doesn’t handle insurer insolvencies, since its role is monetary policy and banking supervision. The State Insurance Department regulates and licenses insurers but doesn’t pay claims after insolvency. The National Association of Insurance Commissioners provides guidance and models but does not itself pay claims.

When an insurer becomes insolvent, the responsibility for paying covered claims and protecting policyowners from financial loss falls to state-level guaranty mechanisms funded by assessments on solvent insurers. These guaranty associations step in to cover claims up to certain limits and to prevent wide-scale financial harm to claimants, continuing coverage where the company left off. This is the function of the Insurance Guaranty Corporation, which exists to pay covered claims and help limit losses for policyowners and claimants.

The Federal Reserve doesn’t handle insurer insolvencies, since its role is monetary policy and banking supervision. The State Insurance Department regulates and licenses insurers but doesn’t pay claims after insolvency. The National Association of Insurance Commissioners provides guidance and models but does not itself pay claims.