NY - if an insurance company goes under....

[SParker]

Hi All, am trying to be my first customer and write myself a participating wholelife policy in NY.

I was told by some agents many years ago that I don't need to worry about an insurance company going under because NY state will guarantee up to $500K of the policy (not sure if is still true nowadays) and besides, even if NY state does not step in to make my policy whole again, other insurance companies will always step in and buy the books of the insolvent carrier , so I really don't have anything to worry about.

My questions:

1) if the above is true, then the ratings of an insurance company shouldn't matter that much to me as a policy owner, correct? Because either way I will be made whole again even if the carrier goes under ?

2) BTW, I was never given any details about NY state's $500K guarantee. Does the $500K gauarantee cover the death benefit only or does it also cover the cash surrender value if I choose to cash out ?

Many thanks...

 

[VolAgent]

Policyholder Protection and the LICGC

I'll let you look up the exact particulars of how it works in New York.

1. Yes, but... The devil is in the details. A new company could run things differently which wouldn't necessarily impact the claim, but could affect customer service and will almost certainly impact any non-guaranteed values. And it would be much the same if the state took over. Typically anything that is not contractually guaranteed will quickly be eliminated.

2. Look at the link above, but typically it only applies to the death benefit, or has a lower limit for cash value.

Also, when a company is in danger of going under, the first choice is to find another company to buy it and its assets. Receivership by the state and the use of the State Guaranty fund is always a last resort.

 

[toolbelt]

Not only will the State guarantee it, but the process of regular ongoing audits is designed to nip potential failures long before they impact the client. So unless there is some catastrophic event or outright major act of criminality, you're pretty safe.

 

[VolAgent]

Not only will the State guarantee it, but the process of regular ongoing audits is designed to nip potential failures long before they impact the client. So unless there is some catastrophic event or outright major act of criminality, you're pretty safe.

Not at all. From what I have observed, most companies go under for one of two reasons.

1. The company was deficient in its underwriting, or grossly mispriced the risk: Penn Treaty, Merced Property & Casualty (yes, homeowners but still applies), and others.

2. The company poorly managed its assets and investment portfolio: Shenandoah, Kentucky Central and many more.

While there is an event that pushes the company into need for receivership, the real problems always started long before and it seems to typically be one of these two reasons.

 

[toolbelt]

Not at all. From what I have observed, most companies go under for one of two reasons.

1. The company was deficient in its underwriting, or grossly mispriced the risk: Penn Treaty, Merced Property & Casualty (yes, homeowners but still applies), and others.

2. The company poorly managed its assets and investment portfolio: Shenandoah, Kentucky Central and many more.

While there is an event that pushes the company into need for receivership, the real problems always started long before and it seems to typically be one of these two reasons.

Seems most issues would stem from lax oversight by regulators whos job it is to protect the consumer using a series of checks and balances.

 

[WinoBlues]

Just a note - not sure if this applies to NY - Fraternals do not fall under most state Guarantee Associations.

 

[VolAgent]

Seems most issues would stem from lax oversight by regulators whos job it is to protect the consumer using a series of checks and balances.

On the face of it, I would agree with you. There could be more to the story, no telling.

I would love to know more about Merced. From what I understand, they had very good pricing in brush areas in California and ended up with a concentrated book of business, which the Camp fires burned down. I really have to question how they allowed their book to get that bad. I also have to question how the regulators missed it.

I suspect the company either downplayed the risk or their internal controls were lacking and missed it. For the regulators, I bet the answer is, "No one said to look for this, so we didn't."

 

[toolbelt]

On the face of it, I would agree with you. There could be more to the story, no telling.

I would love to know more about Merced. From what I understand, they had very good pricing in brush areas in California and ended up with a concentrated book of business, which the Camp fires burned down. I really have to question how they allowed their book to get that bad. I also have to question how the regulators missed it.

I suspect the company either downplayed the risk or their internal controls were lacking and missed it. For the regulators, I bet the answer is, "No one said to look for this, so we didn't."

The real problem is, you can bet the owners of these companies walked away with millions while leaving the public high n dry. Executives hide behind "Safe Harbor" laws and regulators can't touch them. And the current administration is removing laws, which further protects them.

 

[adjusterjack]

Insurance company failures are rare enough for most people not to have to worry about them.

If there is any concern about a particular company, one can find out it's financial rating from the A. M. Best website.

AM Best Company

Learn more about A. M. Best at:

AM Best - Wikipedia

 

[Lloyds of Lubbock]

I think it is great you are going to own what you sell!
From what i remember from my compliance days:
If a companies financials are bad the first thing the state does is try to rehab the company.
If that doesnt work the companies that do business in the state of NY have a charter that says they will take over blocks of business.
Years ago when Mutual Benefit went insolvent Met Life took over most of their whole life policies.
They converted them to Universal Life policies.
While the initial cash values stay in place, the takeover company is not obligated to the guarantees..
So if you want to write a whole ife policy, unless you are with NML or NY Life (not broker friendly) that most likely leaves you with Mass, Guardian or Penn.
If you have access to Vital Signs you can run a report, but as the above poster said there are checks and balances in place so you are pretty safe.