What to Do If Your Insurance Company Is Failing

Insurance companies can have money issues just like any other business. The good thing is that most Texas insurance companies are members of a guaranty association that protect consumers by paying claims if their member companies fail. 

No.

A guaranty association is an independent legal nonprofit created to serve as a safety net for insurance companies that are in financial trouble. Guaranty associations pay the claims while the state court and regulating agencies decide what will happen with the company.

No. Only licensed Texas insurance companies can join. Unlicensed companies are supposed to let you know in writing when they process your policy. Be careful. If they are not licensed, you might have trouble getting your claims paid down the road if they have financial issues.  

No. Texas has three guaranty associations that work together to cover the various types of insurance.

• Life insurance, health insurance, and annuities are covered by The Texas Life and Health Insurance Guaranty Association 
• Homeowners, auto, and workers' compensation insurance are covered by  The Texas Property and Casualty Insurance Guaranty Association.
• Title insurance and escrow shortages are covered by The Texas Title Insurance Guaranty Association .

Health maintenance organizations (HMOs), surplus lines carriers, and multiple employer welfare.

No, but they all:

• provide support insurance companies in financial trouble
• work with state court and state insurance department
• pay claims within certain limitations for dollar amount, coverage limits, and benefit type (only if that benefit was guaranteed by the policy)
• encourage consumers to contact the court liquidator to request payment any balance left after the guaranty association helps with the claim
• have time limits on how old the claim can be when you file it

Court appointed liquidators notify all the policy holders. You can also call Texas Department of Insurance (TDI) at 800-252-3439 Monday to Friday from 8 a.m. to 5 p.m. Central time.

The process comes from Texas Insurance Code Chapter 463. As a warning, the state may use Texas Insurance Code 441.001 to order Commissioner of Insurance supervision for a certain time. If the company still does not do better, state court places the company in one of three programs:

• Conservation; to receive support to keep the company going
• Rehabilitation; to strengthen company management practices with the intent of returning to normal business operation
• Liquidation; court liquidator uses company assets to pay claims and debts as the company prepares to close

30-45 days

The guaranty organization can choose to:

• use company assets to pay claims
• transfer policies to another Texas company, or
• work with an insurance company in another state who is willing to accept and manage the policies

No

It is like bankruptcy, but state courts and state insurance departments work together to investigate and decide what will happen to the company.

You will receive a proof of claim which protects your rights to payment for the balance. Then, they will offer to pay a certain amount of the claim which you can accept or reject. If you reject the offer, they might adjust it and if you still don’t like the amount, you can appeal to the court.

No. Texas Insurance Code 443.301 outlines the order in which the court pays all the people the insurance company owes. Each group is called a class and they go in this order:

• Class 1: Administrative costs and unsecured loans
• Class 2: Pending claims (this would include you)
• Class 3: Pending federal government claims not listed in class 2
• Class 4: Debts to employees that is over $5,000 or two months pay (whichever number is less). Money owed for work done within the last 12 months.
• Class 5: Claims from unsecured creditors not in classes 1-4
• Class 6: State and local government not already listed
• Class 7: State and local government penalty or forfeiture
• Class 8: Claims received after the cut off date
• Class 9: Claims related to the other categories
• Class 10: Interest on allowed claims in classes 1-9
• Class 11: Claims of share holders

There is a limit on how much the guaranty association will pay a person with more than one policy from one company.

First, try to get your claim paid from the company that is not in financial trouble. Then, you can request that the guaranty association pay the claim(s) according to any rules on claim limits.

There are national guarantee associations that oversee all 50 states. They will assign a task force to come up with a plan.

Texas guaranty associations only pay for policies of people who:

1. were Texas residents at the time of liquidation, or
2. have property permanently located in Texas.

All states have guarantee associations. So, if you move, contact the guaranty association in your new state.

No

No. Worker’s compensation insurance is optional and Texas companies that refuse to buy insurance policies form their own guaranty funds. For self-insured employers and groups, the Texas Department of Insurance (TDI) has information about Self-Insurance Guaranty Fund and a Self-Insurance Group Guaranty Fund.