Property and casualty insurance guaranty funds are part of the property and casualty guaranty fund system, a

non-profit A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...

, state-based, statutorily-created

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

consumer protection Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. Consumer protection measures are often established by law. Such laws are intended to prevent business ...

system that protects

policyholder Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

s if an insurer goes bankrupt. Property and casualty guaranty funds step in to pay the covered

claims Claim may refer to: * Claim (legal) * Claim of Right Act 1689 * Claims-based identity * Claim (philosophy) * Land claim * A ''main contention'', see conclusion of law * Patent claim * The assertion of a proposition; see Douglas N. Walton * A righ ...

(which would otherwise go partially or entirely unpaid) of policyholders of an

insolvent In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet inso ...

insurer at levels determined by state law. This ensures policyholders and claimants at greatest risk are protected from the most severe consequences of an insurer's failure.

Colorado Colorado (, other variants) is a state in the Mountain West subregion of the Western United States. It encompasses most of the Southern Rocky Mountains, as well as the northeastern portion of the Colorado Plateau and the western edge of t ...

's guaranty fund statute summarizes the purpose of guaranty funds. The statute states that Colorado's guaranty fund "provide(s) a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment and financial loss to

claimant A plaintiff ( Π in legal shorthand) is the party who initiates a lawsuit (also known as an ''action'') before a court. By doing so, the plaintiff seeks a legal remedy. If this search is successful, the court will issue judgment in favor of the ...

s or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers." Most guaranty funds were created in the 1960s when academics, state

insurance commissioner An insurance commissioner (or commissioner of insurance) is a public official in the executive branch of a state or territory in the United States who, along with his or her office, regulate the insurance industry. The powers granted to the office ...

s, and

lawmaker A legislator (also known as a deputy or lawmaker) is a person who writes and passes laws, especially someone who is a member of a legislature. Legislators are often elected by the people of the state. Legislatures may be supra-national (for ex ...

s sought ways to provide new levels of insurance policyholder protection. Guaranty funds are active in every state, the

District of Columbia ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument and Lincoln Memorial on the National Mall, United States Capitol, Logan Circle, Jefferson Memorial, White House, Adams Morgan, ...

Puerto Rico Puerto Rico (; abbreviated PR; tnq, Boriken, ''Borinquen''), officially the Commonwealth of Puerto Rico ( es, link=yes, Estado Libre Asociado de Puerto Rico, lit=Free Associated State of Puerto Rico), is a Caribbean island and Unincorporated ...

, and the

Virgin Islands The Virgin Islands ( es, Islas Vírgenes) are an archipelago in the Caribbean Sea. They are geologically and biogeographically the easternmost part of the Greater Antilles, the northern islands belonging to the Puerto Rico Trench and St. Croix ...

. State laws require that all licensed

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...

and

casualty insurance Casualty insurance is a defined term which broadly encompasses insurance not directly concerned with life insurance, health insurance, or property insurance. Casualty insurance is mainly liability coverage of an individual or organization for ne ...

companies belong to the guaranty funds in every state where the companies are licensed to do business. A guaranty fund system also exists for the

life Life is a quality that distinguishes matter that has biological processes, such as signaling and self-sustaining processes, from that which does not, and is defined by the capacity for growth, reaction to stimuli, metabolism, energ ...

health Health, according to the World Health Organization, is "a state of complete physical, mental and social well-being and not merely the absence of disease and infirmity".World Health Organization. (2006)''Constitution of the World Health Organiza ...

, and annuity insurance industries, but operates independently from the property and casualty system.

References

{{reflist Insurance in the United States