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Florida Insurance Guaranty Association

Lesson 74 of 92 · All lessons · Up next: Unfair trade practices I: sliding, coercion, misrepresentation, defamation, false advertising →

A safety net when an insurer fails

Insurers are regulated so they stay solvent, but occasionally one fails anyway. When a property and casualty insurer becomes insolvent, its policyholders and claimants still have claims that need paying. In Florida, the Florida Insurance Guaranty Association, Incorporated (FIGA) is the nonprofit entity created by law to pay covered claims against insolvent member insurers, up to limits set by statute, so that an insurer's failure does not leave its policyholders with nothing.

FIGA is not a government insurance fund and it is not backed by state tax dollars. It is financed by the insurance industry itself.

Who belongs

Insurers authorized to write the kinds of property and casualty insurance FIGA protects are member insurers as a condition of their authority to do business in Florida, and every member insurer must comply with FIGA's plan of operation. Protection follows membership: coverage written by an insurer that is not a member, such as an unauthorized (surplus lines) insurer, is generally outside the guaranty association's protection.

How it is funded: assessments

FIGA does not collect premiums in advance the way an insurer does. When an insolvency creates claims it must pay, the association assesses member insurers. Insurers may pass the cost on to their own policyholders as a surcharge, and the law then requires a true-up:

  • Insurers file reconciliation reports showing what they paid the association and what they actually collected from policyholders.
  • If an insurer collected more in surcharges than it paid, it pays the excess to the association; if it collected less, the association credits the difference against future assessments.
  • Reconciliation reports and any excess must reach the association within 90 days after the end of the assessment year, and the association sends a final reconciliation report to the Office of Insurance Regulation within 120 days.

The association may also use a quarterly installment method, collecting the assessment as a uniform percentage of premium from policyholders during the assessment year.

When the insolvent insurer's estate is liquidated, the Department, as receiver, may ask the court to disburse the insurer's marshaled assets to FIGA and similar associations, which helps replenish what they paid out.

Oversight

FIGA operates under a plan of operation it submits to the Department; the plan and its amendments take effect only upon the Department's written approval. The plan sets out how claims are filed and proved, how assets and records are handled, and how board members are reimbursed. A member insurer aggrieved by a final action or decision of the association may appeal to the Department within 30 days. The association is subject to examination and regulation by the Department, and its board must file an annual financial report by March 30.

Florida's other guaranty associations

FIGA is one of three Florida guaranty associations, and the exam expects you to keep them straight:

  • FIGA: property and casualty covered claims.
  • Florida Life and Health Insurance Guaranty Association: life insurance, health insurance, and annuities, administered through three separate accounts.
  • Florida Workers' Compensation Insurance Guaranty Association: workers' compensation, created when FIGA's former workers' compensation account merged with the self-insurance fund guaranty association.
A flow diagram titled FIGA: the safety net when a property and casualty insurer fails. In the center is a dark box labeled Florida Insurance Guaranty Association, a nonprofit created by law. At the top, a box labeled Department, which approves the plan, examines the association and hears appeals, points down to it with a dashed supervision arrow. On the left, a red box labeled Insolvent member property and casualty insurer sends its claims to the association. On the right, a green box labeled Policyholders and claimants receives an arrow from the association, marked pays covered claims, to limits. Below, an orange box labeled Solvent member insurers sends assessments up into the association and notes that these insurers surcharge their policyholders and then reconcile. In the bottom corners are two gray boxes for Florida's other associations: the Life and Health Guaranty Association with life, health and annuity accounts, and the Workers' Compensation Guaranty Association. Along the bottom in red is the reminder: never use it as a sales tool.
How FIGA pays an insolvent insurer's covered claims and is funded by member assessments

What this means for you as an agent

Never use the existence of a guaranty association to sell insurance. Florida law flatly prohibits advertisements or statements that use the guaranty association as an inducement to buy covered insurance. Guaranty protection is a last resort with limits, not a selling point, and a financially sound insurer is always the first line of protection for your client.

The guaranty association pays claims of an insolvent member insurer, is funded by assessments on member insurers, and may never be used as a sales tool.

Key terms

Sample questions

What is the primary purpose of the Florida Insurance Guaranty Association (FIGA)?

  • To set property and casualty premium rates for Florida insurers
  • To license and appoint property and casualty agents
  • To pay covered claims against property and casualty member insurers that have become insolvent
  • To sell property insurance to people who cannot find coverage elsewhere
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