Insurance Company Insolvencies: A Primer for Corporate Policy Holders

The situation created by insolvencies may yet get worse for policyholders. There is already grave concern over the prospects for at least one very large U.S.-based insurance group, coupled with the specter of additional insolvencies affecting European property-casualty insurance companies. Presently, extreme concern exists over the viability of many of Europe's largest insurance companies. A recent article in the insurance trade press quoted an analyst suggesting that many European insurance companies were already 'technically insolvent,' with the specter of asbestos liabilities looming ever more onerous.

The above scenarios are at least a partial illustration that insolvencies occurring today differ markedly from those of the past. First, the insolvencies of the past occurred primarily among small and marginal insurance companies, most of which wrote personal lines or automobile coverage. Today, many of the insurance companies facing insolvency are those that have written huge amounts of general liability insurance and workers' compensation coverage. Second, the insolvent insurance companies of the past were local or regional companies, whereas today, many of the troubled insurance companies are licensed to write insurance in all 50 states. The implication of these differences is that insolvencies now take a much greater toll on businesses in general, as more and more companies find that one or more of their insurers is unable to pay their claims.