Managing and Paying Claims for Property and Casualty Insurance
Western Guaranty Fund Services (WGFS) is a voluntary, non-profit, unincorporated association formed in 1984 for the purpose of managing and paying claims for property and casualty insurance guaranty associations. WGFS exists to provide management and claims supervisory services to insurance guaranty associations (also known as guaranty funds); to assist guaranty associations in the discharge of their statutory responsibilities; and to promptly and efficiently handle covered claims against insolvent insurers.
In 1984 a group of western United States insurance guaranty associations united with a common goal to form Western Guaranty Fund Services. Their goal was to centralize the management of their property and casualty insurance claims and to serve their administrative needs as economically as possible.
In its history, WGFS has managed over 28,000 property and casualty insurance claims on behalf of its member guaranty associations, paying over $440 million to claimants and policy holders.
We are proud to serve our Guaranty Association Members
Insurance Guaranty Associations
Most Americans who deposit money in a commercial bank or savings bank, know that if the bank runs into financial difficulty, they will not lose that money. Thanks to the Federal Deposit Insurance Corporation, a government agency, individual accounts up to $250,000 are protected.
Are there similar protections for people who purchase insurance? Are they safeguarded if something happens to their insurance company? Will their claims be paid? The answer is yes. The vehicle for this consumer protection is the PROPERTY and CAUSUALTY INSURANCE GUARANTY ASSOCIATION.
Despite careful oversight by state regulators, financially troubled insurance companies can become insolvent. State insurance departments monitor the financial condition of all insurance companies. If an insurance company appears to be in poor financial health, regulators are empowered to take certain steps to strengthen the insurer's position and, if all else fails, to ask the courts to declare the insurer insolvent and to order the liquidation of the insurance company.
Once a court has found an insurance company insolvent, and ordered it liquidated, a liquidator is appointed who begins an arduous task to identify assets, collect premiums, notify all parties who may potentially have a claim, and to turn covered claims over to the insurance guaranty association who will handle them to conclusion.
In the late 1960's, following several insolvencies, the first property and casualty (P&C) insurance guaranty associations were established. In 1970, the National Association of Insurance Commissioners (NAIC) representing state insurance regulators, proposed its model law.
Under the model law, a not-for-profit, property and casualty insurance guaranty association is established by each state. All property and casualty insurance companies licensed in the state, writing specified lines of insurance to be covered by the association, are required to be members.
This concept was gradually adopted by all states, the District of Columbia, and Puerto Rico. The associations had established procedures under which solvent property and casualty insurance companies contribute to absorbing covered losses of claimants against insolvent insurers.
Funds for the payment of claims and the expenses of the insurance guaranty association are derived primarily from assessments against licensed property and casualty insurance companies, writing specified lines of insurance, and from the assets of the estate of the insolvent insurer.
The insurance guaranty associations are obligated to pay covered claims of insolvent property and casualty insurance companies that existed prior to the determination of insolvency and typically those arising within 30 days from the date of the liquidation order.
Once claims are received, the insurance guaranty association assumes the day to day handling of the claims and, as seamlessly as possibly, handles all claims to their conclusion.
Under the state insurance guaranty association system, the property and casualty insurance industry has accepted a unique obligation to protect the public from insurer insolvency and has done this very well.
Frequently Asked Questions (FAQs)
WGFS is a voluntary, non-profit, unincorporated association formed in 1984 for the purpose of managing and paying claims for property and casualty insurance guaranty associations. The purpose of WGFS is to provide management and claims supervisory services to insurance guaranty associations or associations crated by statute (known as guaranty funds); to assist guaranty funds in the discharge of their statutory responsibilities; and to handle promptly and efficiently covered claims against insolvent insurers.
Guaranty associations ease the burden on policyholders and claimants of an insolvent insurer by stepping in to assume responsibility for most policy claims following the insolvency. The coverage guaranty associations provide is fixed by policy language and state law; they do not offer a "replacement policy."
By virtue of the authority given to the guaranty associations by state law, they are able to provide two important benefits: prompt payment of covered claims and payment of the full value of covered claims up to the limits set by the policy or state law.
The potential failure of insurance companies, like the potential failure of all businesses, is an unfortunate, but inevitable, part of doing business in a free-market system. Since inception of the property and casualty guaranty association system, there have been about 600 insolvencies. In all, the system has paid out about $24.2 billion.
The associations are largely funded by industry assessments, which are collected following insolvencies. These assessments raise funds to pay claims and administrative and other costs related to the association’s claim paying activities.
WGFS's assessments are capped at 2.0% of a company's net direct premium for the previous year. The other sources of funding are recoveries from distributions of the insolvent insurance companies and government backed investment income.
Liquidation is similar to bankruptcy. When a company is liquidated, the Liquidator (also referred to as the Receiver), collects the assets of the company and verifies the liabilities such as claim payments and bills. The Liquidator then develops a plan to distribute the company’s assets according to the law and submits the plan to the Court for approval.
In most cases, an estate will not yield sufficient money to pay claims in full; and most are not able to pay claims in a timely manner. For this reason, the guaranty association and other state guaranty associations step in (depending on the number of states in which the failed company wrote business) to cover certain claims. The estate’s creditors not covered by the guaranty associations usually receive only partial payment on their claims.
The purpose of the guaranty association is to protect policyholders and claimants from losses due to unpaid claims against policies issued by the insolvent insurance company. Guaranty funds cannot sell insurance policies. To obtain new coverage, you will need to contact a licensed insurance carrier or an insurance agent or broker.
No. Guaranty associations cover only licensed insurers. If you purchased insurance from a company not licensed in your state you can contact your State Department of Insurance to provide additional information.
Please contact us or your assigned adjuster directly.
Yes. If your insurance company has been declared insolvent, covered claims will be paid by the guaranty association up the limits (cap) prescribed by state statutes and the applicable policy. Although there is no maximum for workers compensation claims, the maximum amount WGFS can pay on other claims is $300,000 ($100,000 prior to August 2011). You may file a claim against the assets of the insurance company estate for amounts over that cap that are still within the limits of the applicable policy. The Receiver will send proof of claim forms and instructions for filing a claim.
Claims not covered by the guaranty association may be claims against the remaining assets (estate) of the insolvent insurance company and will be considered in the liquidation process.
It varies, but claim payments begin as soon as possible once a company is ordered to be liquidated. The guaranty association, coordinating with the receivers of the liquidating companies, works hard to avoid delays but in some instances, delays may occur.
No. The associations are designed as a safety net to pay certain claims arising out of policies issued by licensed insurance companies. The associations may not pay non-policy claims or claims of self-insured groups or other entities that are exempt from participation in the guaranty association system. These limits on guaranty association coverage are necessary to balance the need to provide a safety net to those who would be most harmed by the insolvency of their insurance company and keep the burden of providing the safety net at an acceptable level.
Guaranty association coverage is limited to licensed insurers (the members of the guaranty associations that, in turn, pay insolvency-related assessments.) When a licensed insurance company becomes insolvent, the guaranty association pays eligible claims; but a company does not have guaranty association coverage if it is writing non-admitted or unlicensed products, such as surplus lines or is a self-insurer covered in the non-admitted market.
In addition, although most claims are covered by guaranty associations, coverage for a few types of claims may be excluded.
These limits on guaranty association coverage are necessary to balance the need to provide a safety net to those who would be most harmed by the insolvency of an insurance company and keep the burden of providing the safety net at an acceptable level.
WGFS is governed by a Board of Directors that is elected by guaranty association members (that is, all companies writing licensed business in the state). There is also oversight authority by the Colorado Insurance Department, which reviews the association's plan of operation, and may also audit the guaranty association.
While many of the associations are based on a model set forth by the National Association of Insurance Commissioners (NAIC), there are differences in statutes that govern the associations and their operation from state to state, including the amount of coverage provided by the association.
Associations are not responsible for outstanding service provider or vendor invoices as these liabilities of the insolvent entity are not “covered claims” under the statute. You are, however, not without recourse as these outstanding invoices may be evaluated for payment by the Receiver.
In most instances, the guaranty association for your state of residence will be responsible for your claims. However, if your claim relates to property located in another state, that state's guaranty association will generally have responsibility for the claim.
The definition of a covered claim varies by state statute(s). Please view the statute(s) via the "Resources" group in the navigational menu on this page.
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