Sterling Mutual Insurance Company, an admitted carrier in the state, has been declared financially insolvent and ordered into liquidation. The State Insurance Guaranty Association is activated to protect the affected policyholders.
Regarding the regulations and operations of the Guaranty Association, which of the following statements are correct? (Select all that apply.)
- The Association is funded by mandatory assessments levied against other admitted member insurers in the state.Answer
- Competing insurance producers are strictly prohibited from using the Association's existence as a marketing tool to sell policies.Answer
- CThe Association's primary function is to provide financial loans to struggling insurers to prevent their bankruptcy.
- DThe Association provides unlimited financial protection to ensure policyholders suffer absolutely no loss on their claims.
Answer
The correct statements are that the Association is funded by mandatory assessments on other admitted insurers, and that producers are strictly prohibited from using the Association's protection as a marketing tool.
The State Guaranty Association is funded post-insolvency by assessing all other admitted member insurers in the state. Furthermore, consumer protection laws explicitly make it an unfair trade practice for any producer to mention the Guaranty Association in advertisements or sales presentations to induce a sale.
Step-by-Step Solution
Key Concept
State Insurance Guaranty Association Funding and Advertising Prohibitions