Our History and Our Background
Prior to 1970, there was no insurance guaranty fund in Louisiana.
If an insurance company (“insurer”) was declared insolvent,
the policyholder (“claimant”) had to file a claim in
the liquidation proceeding. Any assets from the insolvent insurer
would eventually be divided among hundreds of creditors and claimants
according to rank, which took years and rarely resulted in the actual
payment of many claims.
In 1970, the Legislature created the Louisiana Insurance Guaranty
Association (“LIGA”) as a private, non-profit entity
designed to create a safety net for insurance consumers if their
insurer becomes insolvent during the period of their policy coverage.
LIGA steps in to pay certain statutorily defined claims and claims
for unearned premiums. The payment of claims by LIGA has been a
continuing source of reliability and relief to thousands of families
and companies whose loss would have otherwise gone unpaid. LIGA
covers property and casualty insureds only.
The “guaranty fund” as LIGA is sometimes called, also
serves the insurance industry well. When you buy your insurance
from a licensed company in Louisiana you have the peace of mind
as a consumer, knowing that your claim will be addressed, even if
something unfortunate and unexpected happens to your insurance company.
Some people look at LIGA as a form of “reinsurance”
or a “back up policy” or an extra “umbrella.”
Others compare LIGA to the FDIC, who protects the public when a
bank goes under. The stabilization created by LIGA inures to the
benefit of all insurers in Louisiana, as well as their insureds.
Our Governing Board
The LIGA Board of Directors is comprised of 9 members, 5 of whom
are elected from Louisiana insurance companies or “member
insurers” of LIGA. The other four Board members are appointed
by the Legislature and the Commissioner of Insurance from the general
public. The nine members of the Board collectively form a body with
decades of insurance, legal, and business experience. Because of
our Board composition and their intricate knowledge of the insurance
industry, LIGA remains a very fair system for the insurance companies
in Louisiana and continues to work well to protect the policyholder
Our Funding and Operation
LIGA receives no public funding and never has. LIGA is a private
association run by and for the insurance industry. LIGA has the
authority to assess 1% annually, based upon the premium of all property
and casualty insurance policies written in Louisiana the previous
The Board of Directors of LIGA annually decide whether or not an
assessment upon member insurers is necessary to handle the anticipated
volume of claims befalling to LIGA. When times are bad (multiple
insolvencies and thousands of claims) the Board has assessed annually.
But when times are less critical, LIGA can and has, scaled down
to a skeleton staff and has levied no assessments. LIGA levied no
assessments from 1997-2002.
The decision to assess each year is one of the toughest decisions
made by the Board. The Board relies on information from the Department
of Insurance and our own staff to study actuarial reports and industry
trends and to warn us of potential insolvencies that are looming,
as well as how many claims and the nature and size of those claims
that are about to become the responsibility of LIGA. LIGA’s
Reserve amount is maintained daily and represents the best attempt
at declaring our total financial risk of loss, which also determines
the need for an assessment of companies.
Some of the most complicated claims handled by LIGA is when a workers’
compensation insurance carrier goes under. These types of insolvencies
are much more difficult to calculate, assess, and plan for. It is
more difficult to know how much can be owed on a claim for long
term medical care or disability. In some workers’ comp instances,
we discover that “one claim file” may actually turn
out to be a class action asbestos lawsuit or a claim for a group
of claimants, with hundreds of claimants in one file.
Environmental Issues/Reserves Currently
If there is one crisis LIGA faces right now, it is the large number
of environmental claims, and more specifically, the asbestos unknown.
Based on a report from actuarial experts, reserves for our asbestos
claims are estimated to be $1.1 billion. To better understand the
enormity of this figure, our reserves for non-asbestos claims is
currently estimated at $100 million. (As of July 1, 2005)
Accomplishing Our Mission
LIGA is very proud of its accomplishments. LIGA has successfully
paid and closed 138,075 claims from 149 insolvent companies totaling
$823,757,234.71. (As of July 1, 2005)
Even though LIGA is a private association, all LIGA Board meetings
are publicly announced and held open to the public. The Commissioner
of Insurance, House of Representatives and the Senate attend every
LIGA meeting through their designated representative. Therefore,
any actions by LIGA in any meeting are publicly accessible through
these three public offices as well. LIGA also undergoes comprehensive
audits annually, which are made accessible to the interested public,
and shared with the Legislative Auditor and all member insurance
companies. The Commissioner of Insurance conducted a comprehensive
examination of LIGA in 2005.
Unfortunately, some of the issues discussed by the LIGA Board involve
potential insolvencies. LIGA makes an effort to guard any sensitive
information and/or documents of this nature from the public. The
Board in Executive Session must discuss these matters, outside of
the public for obvious reasons. The Board never votes on any matter,
nor takes any actions while in Executive Session.
Future insolvencies are quite difficult to predict. The impact of
soaring reinsurance rates and the fluctuation in the national economy
make such an endeavor even more problematic. However, LIGA’s
goal has been to create and maintain a flexible and professional
organization that can adapt to any situation or volume of claims,
and utilize its’ funding source (assessment) only when necessary.
A greater emphasis on fiscal management, improved industry regulation,
and recovering more assets from insolvencies, create a hopeful future
with less need for assessing our member insurers while serving the