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Protecting Insurance Policyholders | Letter to the Editor

In the commentary “Congress’ Obligation on Structured-Settlement Fraud” (Roll Call, Sept. 2, 2014), the author makes inaccurate statements about the protections provided by the state life and health insurance guaranty associations (GAs) to payees under structured settlement annuities issued by Executive Life Insurance Company of New York (ELNY). Those misstatements need to be corrected.

No association “refused” to protect ELNY payees, as the author alleges. The state life and health insurance GAs were created to provide protection to resident policyholders of failed life or health insurance companies, but their statutory obligations are to provide such protection only when the company in question is a “member insurer” licensed in their state (in much the same way that the FDIC has obligations only in respect of member or insured depository institutions). Every state GA that had the legal ability to provide coverage to resident ELNY payees or annuity owners did so. Some state GAs were prevented by law from providing protection because ELNY had not been licensed in their state and was not a “member insurer.”

That said, the 40 state GAs that were triggered by ELNY’s failure did more than just protect their resident ELNY payees and annuity owners; they cooperated with the life insurance industry to ensure that every payee, even those living in states in which the company was not licensed, received substantial protection (at least $250,000). A group of large life insurance companies also voluntarily created a Hardship Fund to fund the payment of an additional $100 million to protect payees who experienced hardships from reductions in their annuity payments.

The impact of the ELNY failure on those payees who saw a reduction in their benefit payments is indeed sad. But in this case, as in each one of the comparatively rare cases in which GAs have been triggered over the past 30 or more years, all covered consumers have received every penny of statutorily prescribed GA coverage.

Sean M. McKenna is Director of Communications for NOLHGA, the National Organization of Life and Health Insurance Guaranty Associations.

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