Insurance Company s Financial Stability And Agent s Responsibilities To His Customers

Transcription

1 Insurance Company s Financial Stability And Agent s Responsibilities To His Customers 8/2003 You, the independent insurance agent, are your customer s first line of defense against unplanned loss. As such, you have many responsibilities moral, legal and ethical to your customer. Obviously, those responsibilities include working with your customer to determine the risks they face, and then protecting them from those risks with insurance coverage as completely as possible within the limitations of the marketplace and their willingness to buy the coverage. But your responsibilities go much farther than that. This fact has been illustrated by the hard market and the insurance company insolvencies. Even though the principal thrust of insurance regulation is to avoid insolvencies, on occasion they do occur, a natural reaction of an insured is to look for someone to blame. That someone is usually the agent who sold the policy. An agent s liability for losses arising out of the insolvency of an insurer licensed by the State Insurance Department is well established through case law. An insurance agent is not a guarantor of the financial condition of the insurance company however the agent is required to use reasonable care, skills, and judgment in reviewing the financial stability of a carrier. The agent will be liable for losses due to carrier insolvency when the agent places a risk with a carrier that is insolvent, if the use of reasonable diligence would have revealed the fact. This duty of reasonable diligence has been extended only to determining that the insurer is solvent at the time of placing the insurance. If the insurance carrier was solvent when the policy was written, the subsequent insolvency of the carrier does not necessarily impose liability on the agent. For insurance policies written in non-admitted markets (usually excess-surplus lines however some excess lines are written by a licensed carrier) an affidavit should be completed that the agent was unable, after diligent effort, to procure in a form and at a premium acceptable to the insured the amount of such insurance from an insurer licensed in Virginia. Diligent effort," is whenever the risk or portion of risk placed with a non-licensed insurer has been rejected or declined by three insurers licensed to transact such class of insurance. An agent has to work with a licensed surplus lines broker as no person other than a licensed surplus lines broker shall sell, solicit, or negotiate contracts of insurance in Virginia on behalf of any insurer which is not licensed to transact the business of insurance in Virginia. You also have the responsibility to tell your client if their coverage is being placed with a non-licensed insurer (not covered by the guaranty fund). A notice shall be given to the insured which contains a statement that the policy is being procured from or has been placed with an insurer approved by the Insurance Commission for issuance of surplus lines insurance in Virginia, but not licensed or regulated by the Commission and that there is no protection under the Virginia Insurance Guaranty Association against financial loss to claimants or policyholders because of the insolvency of an unlicensed insurer. The notice shall also set forth the name, license number and mailing address of the broker. The notice shall be given prior to placement of the insurance. In the event coverage must be placed and become effective within twenty-four hours after referral of the business to the surplus lines broker, the notice may be given promptly following such a placement. In addition, a copy of the notice shall be affixed to the policy. The courts will closely scrutinize the agent s conduct to verify that there has been full compliance with the affidavit and notification requirements. In order to avoid liability for an insured s losses, it is

2 important that the agent understand the restrictions or laws on surplus lines business and that these guidelines are adhered to. From a legal standpoint, you are not expected to have some mystic power to foretell the future in determining the financial stability of an insurance company. You are expected to use reasonable care and concern in protecting your customer s interests. To do that, use all the information available to you in the normal course of business as an insurance agent and an association member, along with your own experience in the business on the danger signs which may indicate financial difficulties in a company. Make sure you document your efforts in determining the financial condition of the carrier. Most of the cases where agents liability has been found to exist involve the agent s inability to substantiate any attempt to confirm or verify the financial integrity of the proposed insurance carrier. Any decisions you make in recommending insurance should not be based on the existence of a guaranty association. Guaranty association protection is limited and is not a substitute for care in selecting companies that are well managed and financially stable. There can be no guarantees in today s changing legal environment. But if you protect your customer s interests to the best of your ability, you will have done everything you can to protect yourself from final legal liability in error and omissions claims related to insolvencies. INSOLVENCY THE VIRGINIA INSURANCE GUARANTY ASSOCIATION The Virginia Insurance Guaranty Association Act (VIGA) was created to provide a mechanism for the payment of covered claims against insolvent insurers. Virginia has two such associations: one for property and casualty (Chapter 16, Section 38.2,VA Insurance Code) and another for life, accident and sickness insurance and annuities (Chapter 17, Section 38.2, Virginia Insurance Code). Please note that the Virginia Guaranty Association covers all licensed companies. Non-licensed companies operating on a surplus lines basis are not covered in the event of insolvency. The Virginia Guaranty Association shall apply to all property & casualty classes of direct insurance and to direct life insurance policies, accident and sickness insurance policies, annuity contracts, and contracts supplemental to life, accident and sickness insurance policies and annuity contracts issued by insurers licensed to transact insurance in this Commonwealth but shall not be applicable to the following: 1. Mortgage guaranty, financial guaranty or other forms of insurance offering protection against investment risks; 2. Fidelity or surety bonds, or any other bonding obligations; 3. Credit insurance, credit property insurance, and credit involuntary unemployment insurance; 4. Insurance of warranties or service contracts; 5. Title insurance; 6. Insurance of vessels or craft used primarily in a trade or business, their cargoes, and marine builders' risk and marine protection and indemnity; 7. Any transaction or combination of transactions between a person, including affiliates of such person, and an insurer, including affiliates of such insurer, which involves the transfer of investment or credit risk unaccompanied by transfer of insurance risk; or 2

3 8. That portion or part of a variable life insurance or variable annuity contract not guaranteed by an insurer; 9. That portion or part of any policy or contract under which the risk is borne by the policyholder; 10. Any policy or contract, or part of a policy or contract assumed by the impaired or insolvent insurer under a contract of reinsurance, other than reinsurance for which assumption certificates have been issued; 11. Any policy or contract issued by cooperative nonprofit life benefit companies, mutual assessment life, accident and sickness insurance companies, burial societies, fraternal benefit societies, dental and optometric services plans and health services plans not subject to captive insurers, risk retention groups, and home protection companies. 12. Any contract or certificate which is not issued to and owned by an individual, except to the extent of (i) any annuity benefits guaranteed to an individual by an insurer under such contract or certificate, (ii) any annuity benefits payable for the benefit of an individual by an insurer under an annuity contract issued to fund a structured settlement agreement on account of personal injury or sickness, or (iii) any life insurance benefits and accident and sickness insurance benefits guaranteed payable to any person by an insurer. The Virginia Property & Casualty Insurance Guaranty Association operates separately from the Life, Accident & Sickness Insurance and Annuities Guaranty Association. In brief, the Property & Casualty Guaranty Association pays claims and do not get involved in the liquidation of the company. The Life, Accident, Sickness & Annuities Guaranty sells the existing life policies of the insolvent company to another carrier that continues coverage. In Property & Casualty the insolvent carriers policies are terminated and coverage is replaced by the insured or the agent with another carrier. The Virginia Guaranty Association is triggered when the courts in the domiciliary state of an insurer or the Commonwealth of Virginia have issued an order of liquidation with a finding of insolvency. The Virginia Guaranty Association obtains the funds to pay claims against an insolvent insurer by assessing its members in proportion to the direct net written premiums as all member insurers in Virginia for the proceeding calendar year. No insurer may be assessed more than 2% of its net direct written premium. When a court enters a final order of liquidation for an insurer, all state insurance departments concerned are informed of the liquidation. The Virginia Guaranty Association is responsible for notifying all policyholders and any other interested parties of the determination of insolvency and of their rights under the law. Notification is sent by mail to the insureds last known address or publication of a notice in newspapers of general circulation likely to cover geographical areas occupied by the policyholders. Upon learning of the liquidation, the agent should consider it his/her duty to notify his/her customers with policies in the insolvent company. It is much better if the customer can get the news from their agent than to read about the insolvency of the insurance company in the newspapers. In the situation of multiple state guaranty associations applying to an insolvent company an insured can be considered a claimant under the VIGA if insured is either (i) a resident of Virginia at the time of the insured loss or (ii) the principal place of business be located in Virginia or (iii) the property from which the claim arises must be permanently located in Virginia. The Virginia Property & Casualty Insurance Guaranty Association protects insured, third party claimants, and the residents of the Commonwealth of Virginia. Insureds or claimants seeking coverage must first exhaust other applicable insurance coverage. For example an insured involved in an automobile accident must exhaust their own uninsured motorist coverage before receiving any payment from the Guaranty Association. Insureds or claimants should identify any other sources of recovery for their losses such as contractual liability, waiver of subrogation 3

4 clauses, or excess insurance policies. Where more than one state guaranty association has responsibility for the claim, the guaranty association of the state where the insured resides is primary. If the insured has already filed a claim with the insurance company they may want to re-file another claim form with the Virginia Insurance Guaranty Association. The VIGA will compare the information contained in the Proof of Loss with the company claims file it receives from the liquidator. If the claim has not been filed previously, the VIGA will investigate and adjust the claim. The Virginia Property & Casualty Insurance Guaranty Association shall be obligated to pay covered claims that existed prior to the determination of insolvency and which arose before the earliest of (i) ninety-one days after the determination of insolvency, (ii) the policy expiration date, or (iii) the date the insured replaces or cancels the policy. If the insured is aware of any instance that might possibly lead to a claim, it should be filed so it will be on record. The insured will be due unearned premium from the earliest of above coverage termination dates. The unearned premium will be unearned premium which is in excess of $50 subject to a maximum of $300,000. Just as unearned premiums are returned to the policyholder, unearned commissions may be requested to be returned by the insurance company. Any outstanding premiums due the insurance company are usually aggressively pursued by the company. Any obligation that an agent has in collecting these is stipulated in the agency/company contract. Claims will be paid in full, up to the policy limits subject to the following: Property & Casualty: Such obligation shall be satisfied by paying to the claimant an amount as follows: (i) (ii) The full amount of a covered claim for benefits under a workers' compensation insurance coverage; or An amount not exceeding $300,000 per claimant for all other covered claims. Life & Health: With respect to any one life, regardless of the number of policies or contracts: a. $300,000 in life insurance death benefits, but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance; b. $300,000 in health insurance benefits, including any net cash surrender and net cash withdrawal values; c. $100,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values. However, in no event shall the Association be liable to expend more than $300,000 in the aggregate with respect to any one individual. The Virginia Insurance Guaranty Association pays third party covered claims without regard to the net worth of the insured. For claims it has paid, the VIGA has the right to recover from an insured that has a net worth of $50 million or more. The VIGA, after receiving claims from the liquidator and from policy holders, determines what its liability and expenses are and then assesses its members. The members have at least 30 days to pay the assessment. 4

5 As you can see from the foregoing, the liquidation process takes time. Your client will get his unearned premium and their claim, subject to VIGA limitations, will be paid. But it will take a minimum of six to eight months for this to happen and it takes time for this to happen. COMPANIES IN TROUBLE From the time trouble first appears on the horizon for an insurance company, to the time when a company is officially considered to be bankrupt and is forced into liquidation, there are several definite stages. We have all heard these terms, but there is often cloudiness on exactly what the terms mean. This section sets out those terms and their practical definitions. Cut- Through Endorsements- This endorsement provides that in the event the insurer becomes insolvent, the reinsurer becomes directly obligated to the insured for the entire limit of the underlying policy. Monitored- Being monitored does not necessarily mean that a company is having financial difficulties. A company being monitored is required to file quarterly financial statements with the Virginia Department of Insurance. Ordinarily only annual statements are required. Quarterly statements are given closer scrutiny, particularly for whatever items may have triggered the situation in the first place. The list of companies being monitored is considered confidential and is not made public. Whether or not a company should be monitored in Virginia is a decision of the Department of Insurance. It may come from the company s annual financial statement, other information gathered from within the state, or it may stem from results of the Insurance Regulator Information System (IRIS) of the National Association of Insurance Commissioners (NAIC). Supervision-This is the mildest form of intervention in a company s affairs. Supervision may be ordered by an insurance company s home state or domiciliary state. It is not used very often, but does exist as an option. Most simply put, supervision involves an insurance department in the management of a company in an effort to head off serious trouble. The company s assets are not tied up and the company s management will usually stay in place. The Virginia Department of Insurance could consider supervision only in the case of a domestic company. Cease and Desist- This is an action which may be taken against any company by the Virginia Department of Insurance, whether that company s home state has acted or not. If the Commissioner of Insurance believes serious financial or other difficulties exist in a company, and the insurance department in the state where the company is domiciled has not acted, he may order that company to cease writing any new business in Virginia, and to cease the appointment of any new agents in Virginia. The Commissioner of Insurance is charged with the role of protecting the insurance consumer in Virginia, which includes monitoring the financial integrity of insurance companies. One of the best ways to protect the interests of the insurance consumer is to see that the insurance companies are financially sound and able to pay the consumer s claims. So while the Commissioner of Insurance must make sure excessive rates are not charged, and that the state laws on insurance are obeyed, he must also do all he can to make sure the rates are not too low for the company s survival, and that other sound practices are followed. While informal communication certainly goes on among the several insurance commissioners in the nation, many formal, legal steps are reserved for the state in which a company is domiciled. The cease and desist order is one step the Virginia commissioner may take against any company if he feels it is in the best interests of the consumer and/or the company. The issuance of a cease and desist order is a matter of public record. All State Corporation Commission orders can be found on their website. For practical purposes, these orders are not immediately made public because a company has the right to respond to the order and attempt to 5

6 convince the Commissioner that it is financially sound and should be allowed to continue to do business in the state. If the company is successful, the Commissioner may rescind the cease and desist order. These orders are made public after sufficient time has passed and the company involved either has not made an attempt to reverse the action, or the Commissioner has considered the company s response and decided that the order should stand. Rehabilitation- This is an official court-ordered step which may only be taken by an insurance department in an insurance company s domiciliary state. It means that the company is technically insolvent, but the insurance department believes it can be saved by a reorganization of management, amending operating procedures and rates, or other steps. In rehabilitation, the insurance department involved or its appointee steps in to run the company and institute the changes the rehabilitator feels are necessary to correct the problems. The company s assets are tied up, but normal business, such as the payment of claims, continues. Barring any other action, an insurance company in rehabilitation is still in business and operating. Assuming that the rehabilitator so directs, it can issue policies, pay claims, and so forth. The rehabilitator s job is to cure the company s problem, if possible, and return it to financial health. Rehabilitation is a matter of public record. Liquidation- This is also an official, court-ordered step that may only be taken by an insurance department in an insurance company s domiciliary state. Liquidation is a declaration, by outside interests, that the company is insolvent and cannot be saved. This step may be taken directly, but in practice, more often follows an unsuccessful effort at rehabilitation. Most important to the agent is the fact that an order of liquidation triggers the Virginia Insurance Guaranty Association. An order of liquidation is a matter of public record. EVALUATING A COMPANY S FINANCIAL STRENGTH Evaluating the financial strength of insurance companies is part of an insurance agent s responsibility to his customers. There is no single test or question that will tell you whether a company is financially sound and whether you should write business with it. There are, however, many signs which may indicate financial trouble if enough of them are present. Most experienced agents will have acquired an instinctive feel for these financial trouble indicators. These guidelines are designed literally as guides to encourage you to act on your findings when they do indicate financial difficulties. Up until the time a company is legally declared insolvent, no one is going to tell you not to write business with that company, you have to tell yourself that. Many pages could be written on the various philosophical aspects of this critical decision. But the heart of it is that if you believe a company is in financial trouble and may be declared insolvent and you still place your customer s coverage with that company you have not fulfilled your responsibility to that customer. Moreover, you have also created at least the potential for liability on your part. Warning Signals Any one warning signal is not an indicator by itself but must be looked at in whole with other considerations. Rates vs. Commissions: As we all know, there is just so much of the premium dollar that can be used for commission. If a given company is paying the highest commission levels combined with the lowest rates, watch out particularly if the company also combines the high commission to the producer with an additional override to a managing general agent. The combination normally does not leave enough dollars to pay claims and other expenses and has been historically lethal. 6

7 Claims Payments: Excessive delays in settling even simple claims. If a company starts delaying payment of proper claims, it may be attempting to preserve cash. Changes in Writing: Major increases or decreases in net premiums written may indicate a lack of stability in the company s operations. One test by the National Association of Insurance commissioners (NAIC) is that an increase or decrease of more than 33% is beyond the norm. Reserves: If the agent observes a distinct change in the reserving practices of his own book of business with the company, this may signal a problem. The agent should be particularly wary of a company which has a tendency to set reserves much lower than most of the companies he represents. Loss reserves are a liability on the company s balance sheet. If they are understated, then the policyholder s surplus is overstated. If a company under reserves, it is likely to under price the product plunging it into a death spiral where solvency is impacted by both pricing and overstating surplus. Dramatic Changes in Agent s Underwriting or Binding Authority: Some companies attempt to increase or cut back on certain lines of business by loosening or restricting agents binding authority. This is not unusual on an individual agency basis, but could be a sign of trouble if it is done on a wholesale basis. Type of Business Written: Past experience shows that carriers that restrict their writings to the nonstandard risks in territories that have been historically unprofitable, and are charging very competitive rates, have had financial problems. Arguments over Agents Balances: If a company develops a pattern of problems with balances due or is consistently late in reconciling your accounts, watch out. One method of overstating a company s assets is to overstate agents balances due. Refusals to Finance Premiums: One good clue to watch for is independent premium finance companies refusals to finance a company s premium. The finance companies are fairly sophisticated. If they become concerned about a company s ability to return unearned premium, they may stop doing business with that company. Company Morale: Watch out for low morale or a sudden mass exodus of company employees, both top-level executives and lower-level technical personnel. This is a good indication that something is wrong. Poor Service: A change from good or average service to very poor service can indicate trouble. If a company is three or four months behind in policy issuance at the end of the year, the business will not be on the books and its surplus position will be overstated on its annual financial report. If these warning signals and your own feelings trigger alarms about a company, you may want to go further in your investigations before making your own final evaluation. In the internet age, it is easy to monitor your companies financial strength. One of the most respected sources for insurer financial information is the A.M. Best Co., whose web site provides company ratings for free. For those agencies who have their E&O insurance through IIAV, ERC/Westport Insurance Corp. will be attaching an insolvency endorsement to the agency s E&O policy. This endorsement excludes claims based on the financial inability to pay, insolvency, receivership, bankruptcy or liquidation of an insurance company. Exceptions are: When an agent places a risk with an insurer rated B+ or higher by A.M. Best. 7

8 Any risk placed with entities guaranteed or operated by a governmental body (including carriers/entities participating in a state guaranty fund in the state where coverage is placed). County mutual insurers reinsured by an insurer rated B+ or higher at the time insurance was placed. Another consideration is for agents to verify from the Bureau of Insurance that the carrier is licensed to do business in the state. All licensed companies are required to file annual financial statements with the Virginia Department of Insurance. The deadline for these annual filings is March 1, so information from them should generally be available after that date. These filings are matters of public record. Appointments may be made with the Bureau of Insurance ( ) to view financial statements. Agents may make copies of the filings at a cost of $1.00 per page. If you are doing business with a publicly-owned company, you may write to the secretary of the company and ask to be mailed a copy of the financial statement and to be put on the financial mailing list. You could also ask the company whether it is regularly audited by independent CPAs and if it has received certified, non-qualified financial statements from the auditors. (There are no guarantees on this, but it is an indication that at least the company s records have been reviewed by an outside third party.) You can also request a 10K Securities and Exchange Report prepared by CPAs, and the corresponding stockholder s report. The value of this information is that it gives you an overview of the corporate structure, and additional security or additional funding available if necessary. The agent can get a reasonable picture of the company s financial position by zeroing in on three items. 1. The combined loss and expense ratio 2. The underwriting profit or loss 3. The premium-to-surplus ratio Numerous reported court cases hold agents not liable for losses due to the carrier s subsequent insolvency when the broker had written evidence that the agent consulted A.M. Best and also that the combined ratio was respectable (ie. under 100%). An insurance company which has consistently been losing money on its underwriting operations is in just as much trouble as any other business that has consistently lost money. A premium-to-surplus ratio of two-to-one is generally considered prudent business practice, a lower ratio is better, and a higher ratio needs to be examined in connection with other available information. It can also be very useful to find out what percentage of a given line of business is reinsured and by which reinsurer. The amount of reinsurance is available as part of the company s annual statement. The Insurance Department may order a company to provide quarterly financial statements if it feels the company needs to be watched more closely. The Department will not tell you whether a company is being required to provide quarterly statements. This is for two good reasons: to prevent a run on a company, and because insurance commissioners who have made this information public have found themselves the targets of numerous damage suits. If you do choose to determine whether a company is filing quarterly statements, it cannot be overemphasized that caution must be taken to use the information for yourself only. Public statements about a company filing quarterly reports could expose you to damage suits. As we mentioned above, there is more than one reason a company may be ordered to file quarterly statements. Use that information only in combination with other indicators before coming to any conclusions. The National Association of Insurance Commissioners (NAIC) compiles data on companies in its Insurance Regulator Information System (IRIS). This is a comparison of various company statistics to what are considered normal ranges for that particular figure. If a company is outside the norm for four or more of the audit tests, it has exceptional ratio and is placed on a priority list. This is to advise 8

9 state insurance departments that the company should receive special attention because it is more likely to be in financial trouble than the companies that are outside the established norm on fewer than four tests. You can ask the company itself how it did on the IRIS tests. Every company with which you do business should know how it performed on the tests. Keep in mind; if you have used a company that becomes insolvent, you are not usually liable for an Errors and Omissions situation providing you have used reasonable care and concern with the information available to you. This does not mean that you cannot be sued by an angry customer. In other terms, if you have used reasonable care and concern, you have not committed an error or an omission and most likely would not be found liable for damages. We have included some sample wordings which can be used for communication with your customer. Remember to use due diligence in the selection of carriers and document your efforts in determining the financial condition of the carrier. Sample Wording for Agency Letters Sample Wording to Customer on Non-Admitted Companies: Your insurance policy is due to renew on June 1, At that time, it will be necessary for us to replace coverage with a non-admitted insurance company, since we have received a declination from three admitted companies. (XYZ Company) is approved by the Virginia Insurance Commission for issuance of surplus lines but is not licensed or regulated by the Virginia Insurance Commission. When coverage is written with a nonadmitted company, you lose the ability to collect from the state insolvency fund in the event the company is declared bankrupt. Any claims that are outstanding on the date of the insolvency would be your responsibility to pay. Although many non-admitted companies are financially stable, we must advise you that the possibility exists that your insurance may be uncollectable in the event of a loss. In order to proceed with placement of coverage, we will require your signature on the enclosed authorization form. If the form is not received, we will be unable to continue coverage for you beyond June 1, Sample Wording to Customer for a Down-Graded Carrier: (XYZ Insurance Company), the carrier of your (type of policy), has been downgraded by Best s Insurance Guide from to. This down-graded rating means that (XYZ) no longer satisfies our coverage placement policies based on a degradation in our perception of (XYZ s) financial stability. As a result, we will not be renewing your policy with (XYZ) when the policy s term expires. Instead, we will place your coverage with another carrier that does meet our coverage placement policies. While we are not at this time planning to cancel your policy with (XYZ) prior to the expiration of the policy s term, we want you to be aware that you may cancel your policy prior to its expiration, and we will assist you in transferring your coverage to another carrier. In such case, (XYZ) will adjust the premium for the remaining of the policy s term. 9

10 If you would like to change carriers for your insurance coverage prior to the expiration of your current policy s term, we ask you to contact us immediately so we may explore other possible markets and advise you of the cost to move your coverage. Sample Wording to Customer for Insolvency: We have been recently advised by the Virginia Insurance Department that (XYZ Insurance Company) was declared insolvent and ordered liquidated. All policies with the company will be cancelled effective (date given by Insurance Department). Enclosed is a policy release for you to sign and return to us for this purpose. The Virginia Insurance Guaranty Association provides certain protection for claims and unearned premium. By copy of this letter, we are advising the Virginia Insurance Guaranty Association, (address for VIGA), of your claim for unearned premium. Should you desire coverage to replace that provided by (XYZ), you need to advise us of your intention to purchase replacement coverage. We have a quote of approximately $ annual premium which can be paid in advance or in installments with $ down. If you want this coverage, you need to advise us so we may submit the new application along with your desired mode of payment prior to (date given by Insurance Department). Further questions you might have can also be directed to (Person-in charge) of the Virginia Insurance Department at Sample Wording to Customer for Rehabilitation: We have received notification from the Virginia Insurance Department that the (XYZ Insurance Company) has been placed in rehabilitation by the Virginia Insurance Department with the Insurance Department supervising the efforts to reorganize the company. While the Virginia Insurance Department has placed the carrier in rehabilitation, this does not mean that they have been declared insolvent and are being liquidated at this time. You should be aware that one possibility is that the company will be successfully rehabilitated and continue doing business with no interruption in normal activities and no inconvenience to the policyholders. On the other hand, should the Insurance Department be unsuccessful in the rehabilitation attempts, the consequences are that the carrier will be declared insolvent and placed in receivership. Should this happen, the Virginia Insurance Guaranty Fund may provide some limited protection for both claims and unearned premium. Also, under certain conditions, a claim may continue to be pursued against the court-appointed Receiver of the carrier. We are not suggesting that you make any changes regarding the above- referenced policy at the present time; however, we want you to be aware of the fact that the carrier does have financial problems and the potential consequences. Should you be uncomfortable in leaving your coverage with this carrier, please contact our agency immediately so we may explore other possible markets and advise you of the cost to move your coverage. Again, let us emphasize the importance of giving consideration as to how you wish your insurance matter to be handled and contacting us immediately, as soon as you have made a decision. 10

11 It is the intent of this technical bulletin to be just guidelines and not legal advice. Each agency should review their own particular needs and develop internal procedures that best suits their organization. The Independent Insurance Agents of Virginia does not accept any responsibility for the information provided, but offers such as acceptable guidelines. This information is not intended as legal advice, but is provided for general agency information. Facts, circumstances, and the application of particular laws will differ in individual circumstances. 11