Maine Insurance Guaranty Association

The Maine Insurance Guaranty Association (MIGA) protects policyholders and claimants when property and casualty insurers become insolvent. Understanding MIGA is important for exam success and professional practice.

Purpose of MIGA

Why Guaranty Associations Exist

Problem: When insurer becomes insolvent:

• Outstanding claims may not be paid
• Policyholders lose coverage mid-term
• Claimants left without compensation
• Public confidence in insurance industry harmed

Solution: State guaranty associations

• Step in when insurer fails
• Pay covered claims up to limits
• Return unearned premiums
• Maintain public confidence

MIGA Structure and Authority

Legal Foundation

Title 24-A MRS § 4501-4566 establishes Maine Insurance Guaranty Association:

Key Provisions:

• Created by Maine statute (not private organization)
• Mandatory membership for all licensed P&C insurers
• Funded by assessments on member insurers
• Operates under Bureau of Insurance oversight

Membership

Required Members:

• All insurers licensed to write P&C insurance in Maine
• Includes stock companies, mutuals, reciprocals
• Both domestic (Maine) and foreign (other states) insurers

Excluded:

• Life and health insurers (separate guaranty association)
• Surplus lines insurers
• Risk retention groups
• Self-insurers

Covered Claims and Limits

What MIGA Covers

Covered Claims:

1. Unpaid Claims

   • Claims incurred before insolvency
   • Covered by insolvent insurer's policy
   • Within MIGA coverage limits

2. Unearned Premiums

   • Premiums for coverage period after insolvency
   • Refunded to policyholders
   • Up to statutory limits

Types of Covered Claims:

• Auto liability and physical damage
• Homeowners and property claims
• General liability claims
• Workers' compensation (separate system)
• Commercial property and liability

Coverage Limits

MIGA Statutory Limits:

Important: MIGA limits are per claim, not per policy. If insured has $1 million policy but insurer becomes insolvent, MIGA pays maximum $300,000.

Deductibles

Deductibles Apply:

• $100 deductible per claim for most claimants
• $250 deductible for first-party property claims
• Deductibles help manage association costs
• Some exceptions (workers' comp has no deductible)

Excluded Coverage

What MIGA Does NOT Cover

Excluded Policies:

1. Surplus Lines Insurance

   • Non-admitted insurers
   • Policies placed through surplus lines brokers
   • No guaranty fund protection

2. Self-Insurance

   • Self-insured retentions
   • Self-insurance programs
   • Not traditional insurance

3. Ocean Marine Insurance

   • Ocean marine coverages
   • Excluded from guaranty fund

4. Assumed Reinsurance

   • Reinsurance assumed by insolvent insurer
   • Professional reinsurers bear risk

5. Certain Large Deductibles

   • Policies with large deductibles may have limited coverage
   • Case-by-case evaluation

Excluded Claimants:

• Government entities (federal, state, local typically)
• Some large corporations above net worth thresholds
• Affiliate companies of insolvent insurer

How MIGA Works

Insolvency Process

When Insurer Becomes Insolvent:

1. Insolvency Declared

   • Court orders insurer into liquidation
   • Receiver appointed
   • Assets frozen

2. MIGA Activated

   • Association notified of insolvency
   • Board meets to address situation
   • Claims process established

3. Policyholders Notified

   • MIGA sends notice to all policyholders
   • Explains coverage during transition
   • Provides claim filing instructions

4. Claims Handled

   • MIGA reviews and pays covered claims
   • Subject to statutory limits and deductibles
   • Coordinates with liquidator

5. New Coverage Arranged

   • Policyholders must obtain new insurance
   • Unearned premiums returned
   • Coverage ends as of insolvency date (or MIGA arranges temporary coverage)

Funding Mechanism

How MIGA is Funded:

1. No Pre-Funding

   • MIGA does not maintain pre-funded reserve
   • Assessments made after insolvency occurs
   • Pay-as-you-go system

2. Member Assessments

   • When insolvency occurs, MIGA assesses member insurers
   • Assessment based on insurer's Maine premium volume
   • Maximum 2% of premium per year

3. Tax Credits

   • Insurers can recoup assessments through tax credits
   • Ultimately consumers pay through premiums
   • Spreads cost across entire insurance marketplace

Assessment Formula:

$\text{Assessment} = \text{Insurer's Maine Premium} \times \text{Assessment Rate}$

Example:

Insurer XYZ writes $10 million in Maine P&C premiums MIGA assessment rate: 1%

Assessment: $10,000,000 × 0.01 = $100,000

Producer Responsibilities

Disclosure Requirements

What Producers CANNOT Do:

❌ Use MIGA as Selling Point

• Cannot advertise guaranty fund protection
• Cannot use as reason to choose insurer
• Cannot suggest all losses are fully covered by MIGA

Prohibited Statements:

• "Don't worry about our company's financial strength—MIGA will protect you"
• "Choose any insurer because Maine guaranty fund backs them all"
• "You're fully protected even if insurer fails"

Why Prohibited:

• Could encourage selection of weak insurers
• Misrepresents MIGA coverage limits
• Undermines market discipline

What Producers SHOULD Do

✅ Recommend Financially Strong Insurers

• Check insurer financial ratings (A.M. Best, S&P)
• Choose stable, well-capitalized insurers
• Consider long-term financial strength

✅ Explain Coverage Limits

• If client has high-value property or liability exposure
• Explain policy limits AND guaranty fund limits
• Consider excess/umbrella coverage

✅ Monitor Insurer Financial Health

• Stay informed about insurers you represent
• Watch for financial difficulties
• Be prepared to move clients if needed

MIGA vs. Other Protection

MIGA vs. SIPC (Securities)

MIGA vs. FDIC (Banking)

Recent Maine Insolvencies

Historical Context

Insurer insolvencies are RARE:

• Maine has strong insurer oversight
• Financial examinations identify problems early
• Regulatory intervention often prevents failure

When Insolvencies Occur:

• MIGA activates quickly
• Claims typically processed within months
• Policyholders generally satisfied with process

Examples of Protected Claims:

• Hurricane damage claims from insolvent homeowners insurer
• Auto accident claims when liability insurer failed
• Commercial property losses from bankrupt insurer

Workers' Compensation Distinction

Separate WC Guaranty Fund

Important: Workers' compensation has separate guaranty fund:

Maine Workers' Compensation Residual Risk Pool:

• Separate from MIGA
• Covers WC claims when self-insured employer fails
• No dollar limit on WC claims
• Funded by assessments on WC insurers

Exam Tips

Key Points to Remember

1. MIGA protects policyholders, not insurers
2. $300,000 limit per claim for most P&C coverage
3. Cannot advertise guaranty fund protection
4. Surplus lines excluded from MIGA coverage
5. Funded by assessments on member insurers after insolvency
6. Mandatory membership for all licensed P&C insurers
7. Separate system for workers' compensation

Common Exam Questions

Topic Areas:

• What MIGA covers and excludes
• Coverage limits per claim
• Funding mechanism (post-insolvency assessments)
• Producer disclosure prohibitions
• Difference from other state guaranty funds