When an insurance company fails, it can leave policyholders, claimants, and other stakeholders in financial limbo. To prevent this situation from becoming catastrophic, states have created guaranty associations to provide a safety net. In Hawaii, this role is played by the Hawaii Insurance Guaranty Association (HIGA), which protects policyholders by ensuring the payment of claims in the event that a property and casualty insurance company becomes insolvent. Understanding the Hawaii Insurance Guaranty Association is crucial for anyone holding an insurance policy in the state, particularly those involved in auto, homeowners, or commercial insurance.
What Is the Hawaii Insurance Guaranty Association?
The Hawaii Insurance Guaranty Association (HIGA) is a nonprofit legal entity created by Hawaii state law. Its primary mission is to provide a backup system that pays certain outstanding claims in the event an insurance company licensed to do business in Hawaii is declared insolvent. HIGA operates as a safety mechanism that stabilizes the insurance market and promotes consumer confidence by ensuring that claimants are not left without remedy when their insurer fails.
Statutory Foundation
HIGA was established under Hawaii Revised Statutes Chapter 431:16. This law mandates that all property and casualty insurance companies licensed in Hawaii must be members of the association. By pooling financial resources, the association can cover the costs of claims and administrative expenses when needed. HIGA’s statutory authority makes it legally empowered to step in during insurer insolvencies.
How HIGA Works
HIGA only becomes involved when a member insurance company is declared insolvent by a court of law. Once this declaration is made, HIGA takes over certain claim obligations and begins paying eligible claims, within the limits set by law. The process typically involves:
- Identifying all open claims and policyholders affected by the insolvency.
- Communicating with claimants to ensure claim continuation.
- Coordinating with state and national organizations to manage the estate of the failed insurer.
- Paying valid claims up to the statutory maximum limits.
It’s important to note that HIGA is not an insurer and does not provide new coverage. It only fulfills obligations for policies that were in effect at the time the insurer became insolvent.
Coverage Limitations
While HIGA serves an essential purpose, its coverage has limits. These limits are generally outlined by law and can vary depending on the type of policy and the nature of the claim. Some of the key limitations include:
- Maximum liability limits per claim or policyholder, often set at $300,000 for certain types of claims.
- Exclusions for types of insurance not covered by HIGA, such as life, health, title, or ocean marine insurance.
- Claims must arise from policies issued by licensed insurers in Hawaii.
- Only covered claims as defined by statute are eligible for payment.
These restrictions are designed to balance the need for consumer protection with the practical limitations of funding and administration.
Types of Insurance Covered
HIGA provides coverage for specific kinds of property and casualty insurance, including but not limited to:
- Automobile insurance
- Homeowners insurance
- Commercial general liability insurance
- Workers’ compensation insurance
- Professional liability insurance
Life insurance and health insurance are not covered by HIGA. These types of insurance fall under the Hawaii Life and Disability Insurance Guaranty Association, which operates separately.
Funding Mechanism
HIGA is funded through assessments on its member insurance companies. When a member insurer becomes insolvent, the association assesses other licensed insurers to raise the necessary funds to pay claims and administrative costs. This shared responsibility model ensures that the insurance industry as a whole supports the stability and protection of the consumer marketplace.
Assessment Process
Assessments are typically based on the amount of direct written premiums collected by each insurer in Hawaii. Companies with a larger market share will contribute more to HIGA’s operating funds. These funds are used strictly for handling claims, administrative expenses, and legal costs associated with insolvency cases.
HIGA and Consumer Rights
Policyholders and claimants have rights under the law when an insurer becomes insolvent. HIGA is required to notify affected individuals and guide them through the process of filing or continuing claims. It is important for consumers to understand the following:
- Claims must be filed within the statutory time limit set by the court and state law.
- Claimants should continue documenting losses and communicating with HIGA or its designated claims administrators.
- Claimants may not receive the full value of a large claim if it exceeds statutory limits.
Still, receiving partial compensation through HIGA is generally better than receiving nothing, which would often be the case without such a guaranty association in place.
Coordination with National Organizations
HIGA works closely with the National Conference of Insurance Guaranty Funds (NCIGF) and other state guaranty associations. In cases where a failed insurer operated in multiple states, coordination ensures that claims are handled fairly and efficiently. The NCIGF provides resources, guidance, and best practices to enhance HIGA’s ability to serve Hawaii policyholders effectively.
Why HIGA Is Important
The Hawaii Insurance Guaranty Association plays a vital role in maintaining trust in the insurance industry. Without a guaranty association, the insolvency of even a small insurer could cause massive disruption to policyholders and third-party claimants. HIGA ensures that claims are paid, injured parties are compensated, and the reputation of the insurance market remains stable.
Consumer Confidence
Consumers often purchase insurance with the expectation that claims will be honored if something goes wrong. Knowing that HIGA stands behind licensed insurers gives individuals and businesses confidence to invest in insurance coverage without fearing complete financial loss in the event of company failure.
The Hawaii Insurance Guaranty Association is a cornerstone of financial protection for policyholders of property and casualty insurers in Hawaii. By stepping in when insurers fail, HIGA ensures that eligible claims are paid and that the impact on consumers is minimized. Understanding its function, coverage, and limitations helps policyholders make informed decisions and fosters a secure insurance environment. Whether you hold auto, homeowners, or commercial insurance in Hawaii, being aware of HIGA’s role adds an essential layer of understanding to your coverage and rights.