State Guarantee Funds - mention them or not?

[J2727]

I'm fairly certain that you can't mention State Guarantee Funds when discussing the safety of fixed and indexed annuities. I may be mistaken.

I never understood why not. You can explain how they work and clarify that it's not like FDIC insurance.

However, if the client asks "what if the insurance company goes under", what do you say?

Can you then mention the State Guarantee Funds?

 

[Newby]

I'm fairly certain that you can't mention State Guarantee Funds when discussing the safety of fixed and indexed annuities. I may be mistaken.

I never understood why not. You can explain how they work and clarify that it's not like FDIC insurance.

However, if the client asks "what if the insurance company goes under", what do you say?

Can you then mention the State Guarantee Funds?

Because they are not guaranteed by the state. They have no money in them and are not like FDIC insurance.

Every insurance company has the ability to insure the funds with the financial strength of their own company. Anything you promise beyond that is definitely over promising and under delivering.

States do NOT bail out insurance companies. And neither does the federal government. Unless they are too big to fail of course.

Insurance companies will bail out each other up to certain limits. But if the poop hit the fan they are not going to risk themselves to bail out their competitors.

There is no good way to explain that to the public without thinking it’s more than it is. Or possibly worse than it seems. Just sell tge stability of your company and you are good.

 

[Allen Trent]

Insurance companies will bail out each other up to certain limits. But if the poop hit the fan they are not going to risk themselves to bail out their competitors.

It isn't optional for the competitor. By law, to issue policies in a state, you must be a member of that states guaranty association. So, if a carrier failed & wasn't first bought out by another carrier, each remaining carrier licensed in the state will be assessed their share to cover the claims as spelled out in the laws governing the Guaranty Association. This would of course be after the failing carriers assets are sold.

My understanding is an agent can mention it in marketing materials and cannot give the impression that "it is just like FDIC that banks have". However, when asked by a consumer you can explain & can even provide the coverage materials stated on the Guaranty Assoc website materials

 

[adjusterjack]

However, if the client asks "what if the insurance company goes under", what do you say?

Can you then mention the State Guarantee Funds?

I think it would be preferable to have a print-out of the company's A. M. Best financial rating and history of the company. Let that speak for itself.

 

[DHK]

The VSA offers this concept page:

 

[goillini52]

It isn't optional for the competitor. By law, to issue policies in a state, you must be a member of that states guaranty association. So, if a carrier failed & wasn't first bought out by another carrier, each remaining carrier licensed in the state will be assessed their share to cover the claims as spelled out in the laws governing the Guaranty Association. This would of course be after the failing carriers assets are sold.

My understanding is an agent can mention it in marketing materials and cannot give the impression that "it is just like FDIC that banks have". However, when asked by a consumer you can explain & can even provide the coverage materials stated on the Guaranty Assoc website materials

The only thing I've read is that you arent supposed to bring up the State Guaranty Association when comparing to a Fraternal.

 

[Allen Trent]

The only thing I've read is that you arent supposed to bring up the State Guaranty Association when comparing to a Fraternal.

I actually think the point about fraternals is that fraternals are not part or subject to the Guaranty Assoc, so a fraternal cannot mention the Guaranty Assoc as a protection that would be in place

 

[somarco]

Only licensed insurers must comply with state guaranty laws. Unlicensed insurers (such as reinsurers) are not. Thus, if a business is insured by a non-admitted insurer that is declared insolvent, there is no mechanism for recovering unpaid claims from your state guaranty fund.

State Guaranty Fund

There is an entire world of policies not covered by guaranty funds, and plenty of ways to legally issue policies in a state without participating in the guaranty fund.

Admitted carriers are generally audited every 3 to 5 years, depending on the state, line(s) of coverage, review of annual reports, etc.

It is extremely rare for a guaranty fund to step in. More often than not when a carrier goes into receivership the state DOI takes over temporary management of the carrier business. They look for carriers who may want to assume ownership of the assets (and liabilities) before liquidating a carrier.

Liquidation can take years to settle claims. Assets are used to pay claims up to the ceding limit. Reinsurance kicks in above that limit.

If part of your sales pitch involves invoking the safety of the state guaranty funds you need to reconsider your approach.

 

[scagnt83]

Cant be part of your sales pitch. But you can explain how it works if a client asks about the company becoming insolvent. Better know how it works if you are going to explain it, otherwise just pull up the consumer info page on the website.

 

[VolAgent]

In most states, the law creating the Guaranty Fund addresses mentioning it in marketing. Generally you are prohibited from using it as a marketing tool, however you can discuss it when asked.

Insurance companies can go under, and policyholders can receive less than policy benefits when it happens.

If you are worried about the solvency of a company, you probably don't to place a large portion of your life savings with it. Regardless of the State Guaranty fund.

The same with FDIC, if I'm worried about a bank, I don't care if the FDIC insures it or not. Go ask the people back in 2007-2009 how much fun it was when a bank goes into receivership. While typically the FDIC is pretty good about making it all but seamless for the depositors, it gets very ugly, very quickly when they can't quickly find a new buyer.