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What is a guaranty fund?

Property and casualty guaranty funds are part of a non-profit, state-based, statutorily-created system that pays certain outstanding claims of insolvent insurance companies. By paying these claims, guaranty funds, sometimes called guaranty associations, protect policyholders and claimants.
Guaranty funds are active in every state, the District of Columbia, Puerto Rico and the Virgin Islands. State laws require that licensed property and casualty insurance companies belong to the guaranty funds in every state where they are licensed to do business.
Most guaranty funds were created in the 1960s as state insurance commissioners and lawmakers responded to an increase in insolvencies of insurers writing policies in the high-risk auto insurance business. The South Dakota Insurance Guaranty Association (SDIGA) was created in 1970.
A guaranty fund system also exists for the life, health and annuity insurance industry; but it operates independently from the property and casualty system. This information concerns only the property casualty guaranty funds.
 



faq | by Dr. Radut