Property and casualty guaranty funds are part of a non-profit, state-based, system established in state law that pays certain outstanding claims of insolvent insurance companies. Guaranty funds, sometimes called guaranty associations, provide a limited “safety net” for policyholders and claimants of insolvent insurance companies.
Guaranty funds exist in every state, the District of Columbia, Puerto Rico and the Virgin Islands. State laws require that licensed property and casualty insurance companies belong to the guaranty funds in every state where they are licensed to do business.
Most guaranty funds were created in the 1960s and early 1970s as state insurance commissioners and lawmakers responded to an increase in insolvencies of insurers writing policies in the high-risk auto insurance business.
A guaranty fund system also exists for the life, health and annuity insurance industry. The life, health and annuity guaranty funds operate independently from the property and casualty system. This information concerns only the property casualty guaranty funds.