Kentucky Governor Signs Bill: Guaranty Fund Won’t Pay Claims from Self-Insurers

March 23, 2023 by

Kentucky’s governor this week signed into law a bill that seeks to make one thing perfectly clear: The Kentucky Insurance Guaranty Association will not pay claims from defunct self-insurers that are not members of the association.

“The new law basically says that if you’re not a member carrier, if you’re self insured, or if you are a self-insured that does a deal with a member carrier for a loss-portfolio transfer, that’s not going to be covered by the association,” said Scott Webster, executive director of KIGA. “It clarifies things, basically.”

House Bill 210, sponsored by Rep. Michael Sarge Pollock, R-Campbellsville, was approved by unanimous votes in the House and Senate. Gov. Andy Beshear signed the measure Tuesday.

KIGA includes property and casualty insurers licensed in the state. Members agree to be assessed a fee to help cover outstanding claims of insolvent member carriers. The bill was necessary, Webster said, because KIGA has seen a number of letters in recent months to policyholders of insolvent self-insured funds, contending that the guaranty association would be responsible for outstanding claims.

“We wanted to clarify that: No, we’re not,” Webster said. “We’re only responsible for an insolvent insurer that’s a member.”

Questions have also arisen about loss portfolio transfers, in which an insurer or reinsurer assumes open and future claims liabilities. KIGA will not cover those if the participating insurers were not members of the association, Webster explained.

“Any loss portfolio transfer has to be between member carriers, who were members on the date the agreement was made,” he said.

A covered claim is defined in the bill as an unpaid claim, including a claim for unearned premiums, against insolvent member insurers. Claims are covered if “both the assuming insurer and the ceding insurer were member insurers at the time the assumption was made.”

KIGA also won’t pay claims from defunct self-insured funds established by the state or self-insurance guaranty funds established by the state. “That’s a whole other story,” Webster said.

State Rep. Daniel Elliott, R-Danville, recently wrote in a Kentucky newspaper site that members of the Kentucky Group Self Insurance Fund testified on HB 210. The fund has lost most of its members and is in danger of not being able to pay claims, Elliott noted.

HB 210 also updates statutory language on ocean marine insurance, in keeping with model legislation, Webster said.