Financial Stability and the DFS
One of the New York State Department of Financial Services’ primary functions is overseeing the financial stability of insurance companies. A company’s financial stability helps to assure the consumer that the company will be there to pay claims in the future. Few company failures have occurred in the past, and the Department remains confident that the statutory and regulatory framework currently in place will continue to afford the consumer the greatest protection and the least disruption to their coverage. When necessary, the Department will work with an insurer to take all reasonably feasible actions to rehabilitate its financial situation, including supervision of the reinsurance or sale of one or more blocks of business.
To date, New York has not experienced a company’s financial failure involving long term care insurance. Several published opinions by the Department have concluded that the Life Insurance Company Guaranty Corporation is applicable to long term care insurance policies issued by life insurance companies authorized to transact accident and health insurance in New York. Under this guaranty fund, life insurance companies that are members meet their obligations to the guaranty fund by offering coverage to those individuals who lose coverage under the insolvent firm. The coverage may or may not be the same as the prior coverage. This fund applies only to insurers organized as life insurance companies.
Guaranty Fund Protection in New York State
In 1941, New York became the first state in the country to provide consumers with a measure of protection against the insolvency of a domestic life insurer. In 1985, the Life Insurance Company Guaranty Corporation of New York (the “Guaranty Fund”) was established to include licensed non-domestic life insurers.
The Guaranty Fund is a not-for-profit New York corporation that provides funds to New York resident and certain nonresident policy owners in the event of the insolvency of a licensed (or formerly licensed) life insurer.
The Guaranty Fund is managed by a board of directors, consisting of representatives of member insurers and the Superintendent of Financial Services. Every life insurer licensed to do business in New York State must be a member of the Guaranty Fund as a condition of doing an insurance business in the state.
The Guaranty Fund is funded through assessments against member insurers made after a member insurer is declared insolvent by a court of law. These funds are used to pay valid claims, as well as administrative expenses.
When an Insurance Company has Financial Difficulty
The Superintendent may seek an order from the New York State Supreme Court allowing the Superintendent to take over a domestic insurer's operations if certain circumstances exist that affect an insurer’s financial stability.
Once the Superintendent steps in to take over an insurer, official notice is sent to all policy owners explaining the circumstances that made the action necessary. In addition, notices are published in newspapers.
Rehabilitation vs. Liquidation
Supervision of a domestic life insurer may take one of two forms: rehabilitation or liquidation.
In rehabilitation, the Superintendent, as receiver, attempts to return the insurer to a financially stable condition. In liquidation, the Superintendent, as receiver, takes steps toward the eventual dissolution of the insurer. Both approaches are designed to enable the Superintendent to protect policy owners and creditors.
If a life insurer is domiciled in another state and is placed in rehabilitation or liquidation in that state, then the Superintendent may seek a court order allowing the Superintendent to take control of the insurer’s assets in New York.
Protections and Limits on Protection
The Guaranty Fund provides up to $500,000 of coverage to a life insurance policy owner, individual annuity (such as a single premium deferred annuity) contract holder or individual accident and health insurance policyholder, or any beneficiary, assignee, or payee of the foregoing.
In addition, the full benefits of group accident and health insurance policies issued by licensed life insurers are protected for a minimum of six months.
Funding Agreements and Group Annuity Contracts
The Guaranty Fund also provides some limited coverage to funding agreements and group annuity contracts. Group annuity contracts, including guaranteed interest contracts and funding agreements, are frequently used for the investment of the assets of pension, profit-sharing and salary reduction plans. Most often it is the plan trustee or sponsor who makes the investment. The extent of Guaranty Fund protection for an individual participant depends upon the insurer's obligations as set forth in the contract.
If a contract does not guarantee annuity benefits with respect to any specific individual identified in the contract, then the Guaranty Fund will provide coverage for the total invested with the insurer, up to $1 million. If the contract guarantees annuity benefits with respect to specific individuals identified in the contract, then the Guaranty Fund provides up to $500,000 coverage to New York residents and certain nonresidents.
With respect to agreements that do not fund benefits under employee benefit plans, the Guaranty Fund provides aggregate coverage of up to $500,000. Specific information about the type of contract through which protection is provided should be obtained from the employer.
Choose your insurer carefully. Although the Guaranty Fund provides some protection, there are limitations on coverage, so do not ignore an insurer’s financial condition and assume that you will be fully protected if the insurer fails to meet its obligations.
About the Department of Financial Services
One of the Department’s most important responsibilities is regulating the activities of life insurers doing business in New York State to ensure that the promises made in insurance policies and annuity contracts are fulfilled. To that end, each life insurer licensed in New York submits comprehensive annual and quarterly reports on its financial condition to the Department. In addition, the Department's insurance examiners conduct regular on-site examinations of all New York domestic life insurers to evaluate their financial condition, and their underwriting and claims-handling practices. Life insurers domiciled outside of New York State but doing business in this state are subject to on-site examinations by their domiciliary insurance regulators.
Questions and Help
If you have questions about life insurance policy owner and annuity contract owner protections and your policy or contract, then review the Frequently Asked Questions section of the Guaranty Fund website to see if the answer is there.
To determine if an insurer is licensed in New York, use our Insurance Company Search function.
If you still need help, or have a question about a New York-licensed life insurer, then please contact us.