Glossary of Insurance Insolvency-Related Terms
Covered Claim - A claim that a state statute defines as payable by the state's guaranty fund.
Claim Cap - Limit of claim payment that can be made by a guaranty association. The limit is set in guaranty associations statutes.
Early Access - Funds released from the insolvent estate to the guaranty associations to assist with claim payments of the associations. These funds are subject to call-back by the liquidator if needed to pay higher priority claims.
Estate - The corpus of an insolvent insurance company. The estate includes all of a company's remaining assets - liquid and non-liquid.
Guaranty Associations (or "Guaranty Funds") - Non-profit, state-based organizations created by individual state statute for the purpose of protecting policyholders and claimants from financial loss and delays in claim payment related to the insolvency of an insurance carrier. Guaranty Funds adjust and pay certain claims under policies of the insolvent insurance carrier.
Insureds - Those who are insured by an insurance company.
The NCIGF Guaranty Fund Model Act - A legislative framework that embodies a sound guaranty fund policy. State policymakers may draw on it when writing or updating guaranty-fund-related laws.
The Insurer Receivership Model Act (IRMA) - The model liquidation act of the National Association of Insurance Commissioners (NAIC).
Large Deductible - A policy under which the insurance company pays the full amount of the claim, but the insured is obligated to reimburse the insurance company for a certain amount of that payment – the deductible amount. Typically, large deductible policies have deductible amounts of $100,000 or more. If the insurance company becomes insolvent the guaranty fund steps in and pays covered claims within the deductible and has the same reimbursement rights as the insurance company.
Liquidator - The person who oversees the winding up of an insolvent insurance company which has been ordered liquidated. The liquidator's responsibilities include reviewing claims against the company and marshalling the company's remaining assets so those funds can be distributed to claimants.
Net Worth - The amount by which an entities' assets exceed its liabilities (Net worth and its method of calculation may be specifically defined in a guaranty association statute.)
Net Worth Provision - A provision in state law that excludes claims of insureds with high net worth from the class of covered claims paid by the guaranty associations. Usually, per terms of its statute, the guaranty fund denies first party claims of these insureds, and has a right to recover payments it has made on third party liability claims.
Order of Liquidation - A court order that finds a company to be insolvent and orders it to be liquidated. This order usually triggers the guaranty funds.
Order of Rehabilitation - A court order by which a state insurance commissioner is appointed Rehabilitator of a financially troubled insurance company, and is given the authority to manage the company until its problems are corrected. In this situation, commissioners take control of companies' books, records, assets and assumes all powers of the companies' directors, officers and managers.
Order of Supervision - An order by a state insurance commissioner that requires a financially troubled insurance company to take specific corrective steps before it is permitted to undertake certain transactions.
Order of Suspension - An order by which a state insurance commissioner can order a financially trouble insurance company to cease all or a portion of its business in a state.
Proof of Claim (POC) - A document filed by a claimant making a request for a distribution from an insolvent company.
Receiver - May be the liquidator of a company in liquidation or the rehabilitator in a rehabilitation context or a supervisor or conservator.
Run-off - A scheme in which a financially troubled insurance company ceases writing new business for certain types of coverage or all types of coverage. Recently, proposals have been floated to run-off the business of insurance companies in troubled financial condition instead of placing them into a statutory liquidation through the guaranty funds.
Self Insured Retentions - Amount of loss that an insured is liable to pay before its insurance policy is activated. This differs from large deductible policies as the insurance company is not obligated to pay within the retention amount. [Additional input needed.]
Third Party Administrator (TPA) - Independent administrators contracted to perform claims adjustment services. TPAs can be used by insurance companies and sometimes by guaranty associations.
Uniform Data Standards (UDS) - An electronic communication protocol with defined file formats permitting the uniform communication of policy and claim information between the receiver and the guaranty funds.
Unearned Premium Claim (UEP) - A policyholder claim for the unearned portion of premium paid in advance and remaining on a policy term after cancellation. For example, with a six-month premium, at the end of the first month of the premium period, five-sixths of the premium is unearned by the insurance company. A policyholder is typically entitled to submit an unearned premium claim if the insurance company becomes insolvent and is ordered liquidated, resulting in the cancellation of the insurance policy before expiration.
Insurance Information Institute's Glossary of Insurance Terms