Insurance Consumers Protected by Solvency Standards

Regulatory Safeguards Offer ‘Insurance Policy’ in Times of Crisis

Insurance Commissioner Nonnie S. Burnes today issued the following statement in response to the financial issues facing American International Group (AIG):

The Massachusetts Division of Insurance (Division) has a very strong message for consumers: If you have a policy with an AIG insurance company, those companies are solvent and have the capability to pay claims. The Division is working with other state insurance divisions to ensure that the insurers continue to have the ability to pay. State insurance regulators are committed to protecting the interest of policyholders and will work closely with AIG management and other regulators to fulfill this commitment.

The No. 1 job of state insurance regulators is to make sure insurance companies operate on a financially sound basis. If needed, we immediately step in if it appears that an insurer will be unable to fulfill the promises made to its policyholders. This includes taking over the management of an insurer through a conservation or rehabilitation order, the goal being to get the insurer back into a strong solvency position.

In the rare event that the efforts of the state insurance regulators cannot prevent an insurer from failing, the insurer will be liquidated. Claims from individual policyholders are given the utmost priority over other creditors in these matters — and, in the event that assets are not enough to cover these claims, there is still another safety net in place in Massachusetts to protect consumers: the state guaranty fund. If an insurance company becomes unable to pay claims, the guaranty fund will provide coverage, subject to certain limits.

It is a state insurance regulator’s responsibility to protect policyholders and ensure a healthy, competitive market for insurance products. Strict solvency standards and keen financial oversight — based on conservative investment and accounting rules — continue to be the bedrock of state-based insurance regulation. The Division will continue to work with other state regulators to assure that consumers are protected.