New Law Highlights States' Roles in Protecting Auto Insurance Customers

Aug 31, 2010, 08:00 ET from Online Auto Insurance, LLC

LOS ANGELES, Aug. 31 /PRNewswire/ -- A new law passed by the Missouri Legislature to better protect auto insurance policyholders from failing insurers went into effect last week. The legislation aids the state Department of Insurance (DOI) in tending to failing coverage providers by outlining the sets of circumstances under which an insurer may be considered financially hazardous. Although this new measure strengthens the safety net for insured public, advises consumers to always check the viability of prospective insurers and to choose a financially strong provider regardless of the state of residence.

The clearer guidelines will allow regulators to issue corrective directions to ailing insurers at an earlier point than was previously allowed, and, according to the DOI, this will result in more successful rehabilitations of at-risk insurance companies and a more secure marketplace for consumers.  The new law highlights the existence of the safety net put in place by governments to protect insurance consumers.

State regulators throughout the country expect auto insurance companies to maintain adequate asset levels in order be able to pay for claims. After all, policies covered by insurers without the means to pay are not worth very much.  So, in order to protect consumers from insurers that crumble financially, state legislatures commonly establish safety nets with two main mechanisms: guaranty associations and guidelines for the rehabilitation of insurers.

Guaranty associations' main functions are to establish and maintain fund pools used to make good on claims that have been filed by citizens with insurers that can no longer operate. The fund pools are filled through deposits from insurance providers to state regulators, along with failed insurers' remaining assets. These funds, though, do not come into play until the state department has taken steps to rehabilitate the company.

The rehabilitation process, before the Missouri legislation took effect, practically did not begin until a state court found an insurer to be insolvent, which means that its outstanding debts have become greater than its total assets. Once an insurer is found insolvent, the state regulator can be allowed through the court to take it over and attempt to correct the conditions that led to its degradation. According to the Missouri DOI, the majority of these cases eventually result in liquidation and the closing of the company. The new law, though, will "serve as an early warning tool" when a provider is at a heightened risk of becoming insolvent.  The DOI believes that the earlier warning will allow for more successful rehabilitations of floundering insurers.


Despite the existence of this safety net, consumers should consider the financial stability of the providers with which they are making such an important investment. Shoppers wishing to learn more about auto insurance providers can go to where visitors can also get free and easy quote comparisons from a range of reputable carriers.

SOURCE Online Auto Insurance, LLC