State Case Could Shake Up Life, Annuity and LTCI Issuer Insolvencies

The association members usually do not pay large guaranty association premiums to prefund guaranty fund obligations. Instead, they pay large assessments to cover the obligations that come due when insurers fail.

Traditionally, state insurance regulators have classified stand-alone long-term care insurance (LTCI) as a health insurance product. Because of that approach, health insurers have been responsible for shouldering much of the cost of the failure of Penn Treaty, an LTCI issuer that became insolvent in 2017, even though companies typically thought of as life insurers have written most LTCI coverage.

Perspectives

The American Council of Life Insurers has expressed alarm about the Pennsylvania ruling and asked the Receivership and Insolvency Task Force to make sure the Pennsylvania approach does not end up applying to life insurance, annuities or LTCI.

The ACLI believes "the application of Warrantech to LTCI and life/health products is counter to every interpretation of receivership and guaranty association frameworks," and that it would be "detrimental to the reputation of the industry if policyholders cannot rely on the protections that have been in place for decades," according to a meeting summary in the Receivership and Insolvency Task Force meeting packet.

Chris Peterson of Arbor Strategies, a representative for the health insurers, has told the task force in a letter that it does not have to address the matter, because the matter is still in litigation, and the Pennsylvania ruling involves a state-specific law, not a model law, or recommended law text, developed by the NAIC.

Patrick Cantilo, a receivership law expert, has told the task force that he believes that, if Pennsylvania had adopted the NAIC's model language, that would have eliminated the current concerns.

He has suggested that the task force should declare that its sense is that "the abrogation of life, health, or long-term care insurance provided by the policies of an insolvent insurer through implementation of provisions that limit such coverage to guaranty fund limits are contrary to public policy,"

Task force members ended up agreeing to start by monitoring the situation and surveying states to what rules are really in place at the state level.

Resources

A link to the spring meeting materials packet is available here, under the Meeting Materials tab.

— Read Regulators Aim to Make Troubled Insurers Work Better, on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on LinkedIn and Twitter.