Property & Casualty Pre-Liquidation Planning: Readiness Framework
Insolvency Readiness: A Framework for Action
Take action early, before liquidation. Everyone knows their job, works together, and gets the information they need on time.
Consistent application across jurisdictions improves readiness and reinforces policyholder protection nationwide.
Early Preparation
If Preparation Lags
Validated data and organized for secure transfer.
Delayed data. Time is needed to locate, test, and confirm data before data transfer can begin.
Executed agreements with vendors/TPAs.
Additional onboarding time may be required for vendors/TPAs
Identified key partners and briefed early.
More effort needed to coordinate roles and responsibilities
Communications are prepped for immediate release.
Increased demand on receivers and guaranty funds to respond to questions
A lag in any one of these areas can delay claims payment to policyholders by the guaranty
funds.
Step One: While the Regulator Identifies Risk
Regulators are continuously evaluating carrier financial health, including key metrics like Risk-Based Capital (RBC), so that any sign of stress is handled proactively.
From the insolvency perspective, we’ve seen the following factors complicate insolvency and shorten the preparation time for liquidation:
Data readiness
Troubled companies rely on outdated systems, slowing UDS conversion.
Complex structures + co-mingled data
Transfers, divisions, shared IT systems.
Litigation
Costly judgments drain resources.
Catastrophic losses
Disasters create hardship claims.
Legislative changes
New liabilities (e.g., revival statutes).
Examination-Level Readiness
During financial exams, regulators can apply the NAIC IT examination standards 3 to streamline the liquidation.
Check:
- Outdated vendors or claims systems
- Contracts for data transfer rights and ownership
Goal:
Smooth conversion of claim + policy data into NAIC UDS.
Other Regulatory Proceedings
Confidential Supervision / Run-Off
- Test data early with an expert UDS IT vendor (similar to hiring consultants like actuaries).
- Keeps data validated and ready for insolvency.4
Rehabilitation
- Focus stays on restoring financial health.
- Opportunity to confidentially plan the transition with guaranty funds using the provided framework. 5
Why it Matters
Substantially reduces downstream disruption.
Regulators minimize critical barriers such as outdated data systems, legal risks, and structural obstacles and prevent compounding the challenges in a potential future insolvency.
Key Takeaway:
Early planning in examinations reduces disruption, cuts costs, and keeps consumers protected.
References
3 Pages 67, 112-114 for information about UDS in the NAIC Financial Condition Examiners Handbook (link)
Step Two: Early Engagement with Guaranty Fund Stakeholders (Approx. 5–15 days)
Confidential engagement with the domiciliary guaranty fund supports a seamless transition if liquidation becomes necessary.
Confidentiality
Essential to both guaranty funds and regulators to support the Commissioner’s duties.
Keep all shared materials confidential and privileged.
Confirmation in writing that non-public information will be protected.
Consent to insurer intervention if disclosure is sought—and notification of all parties of any request.
Negotiated and tailored to each state’s confidentiality statute for full compliance.
NAIC Endorsed Memorandum of Understanding (MOU)
The MOU6 — vetted and endorsed by RITF, RFAWG, and the IT Examination Working Group. It aligns with Model Law #390 and provides a proven framework for secure early planning.
Adoption of an evergreen MOU to provide an ongoing watchlist of distressed companies.
Execute an MOU on an as needed case-by-case basis.
Negotiate a regulator-initiated, state specific, confidentiality agreements. The MOU is only one option.
Limited Confidential Group
Regulator(s)
Receiver
IT Vendors
Domiciliary guaranty fund (excluding Board of Directors)
NCIGF staff (excluding members and Board of Directors)
Key Takeaway:
Confidential early engagement—grounded in NAIC Model Law #390—enables regulators and guaranty funds to plan securely, act swiftly, and protect consumers if liquidation occurs.
Alternative:
Hire an expert IT vendor experienced with NAIC UDS to begin data evaluation. Regulators can do this with similar authority used to hire actuaries or auditors.
Top priority: Early data preparation is the top priority for P&C guaranty funds once liquidation becomes imminent.
References
Step Three: Data Evaluation (Approx. 30–60 days)
Biggest Obstacle
Data integrity is the largest and most time consuming obstacle in P&C liquidations.
Enables policyholder protection through faster guaranty fund payments post-insolvency.
Supports timely financial reporting for both the Receiver and the insolvent company.
Engage IT Support
Bring in an IT vendor to analyze and extract company data for conversion into NAIC-approved UDS records.
Key Takeaway:
Save time and expedite claim payments. Test data early. Fix issues now.
Learn more:
See details on NAIC UDS and Home – GSI.
NCIGF staff can suggest expert IT vendors used in past insolvencies. Please reach out to [email protected].
Step Four: Insolvency Readiness Review (Approx. 5–15 days)
Key Collaboration Areas
Guaranty Funds + Regulators should focus on:
Test and confirm data accuracy and transferability (Step 3*).
Flag business lines or claim types likely to cause high volumes or hardships.
Cross-train teams and keep critical staff.
Where possible, authorize immediate payment of critical claims (e.g., workers’ comp, pharmacy benefits).
Key Takeaway:
Broader coordination, stronger readiness, and capacity across regulators, receivers, and guaranty funds, all while protecting policyholders more seamlessly.
As Risk Rises:
Expand the confidentiality agreement to other affected states—especially those with the largest claim counts.
Step Five: Prepare Collaborative Operations (Approx. 5–15 days)
Ready for Liquidation
Guaranty funds use early information to stage claims systems, staffing, communications, and financial tools for immediate activation at liquidation.
A well-planned handoff means faster claim intake, timely payments, clear communication, and minimal disruption—all in line with statutory responsibilities. 7
What Guaranty Funds Can Do Now
Claim Management
Claims review + triage
Prep intake systems (call centers, UDS validation). Prioritize hardship or time-sensitive claims. Share estimated payment timelines with regulators based on company size, line, and data quality.
Unearned premium refunds
Work with Receiver/Regulator to calculate and return unearned premiums quickly—reducing policyholder disruption and helping consumers secure new coverage faster.
Communications
Policyholder outreach
Develop and regularly update FAQs tailored to the insolvency to cut confusion and streamline claims handling.
Coordinate with NCIGF
In multi-state cases, align operations and share updates under confidentiality protocols.
Staffing
Internal
Cross-train employees to handle multiple insurance lines and redeploy as needed. Engage specialized adjusters for complex claims.
Third-party administrators (TPAs)
Negotiate agreements for immediate capacity—covering cyber, worker’s comp, pharmacy benefits, and general adjusting.
Financial Readiness
Assessment readiness
Prepare for potential member insurer assessments. Manage communications to ensure timeliness, transparency, and statutory compliance.
Why it Matters
Early coordination helps regulators ensure a smooth liquidation—speeding claims handling, stabilizing policyholders, and maintaining public confidence in the resolution process.
Key Takeaway:
Test systems, align communications, flex staffing, and prepare finances so operations launch seamlessly at liquidation.
References
Step Six: Maintain Readiness
Plan Early. Protect Better.
Early planning ensures the strongest protection for policyholders and claimants.
Quiet Readiness
As regulators and company leaders work toward recovery, guaranty funds can prepare quietly by:
Validating NAIC UDS data integrity
Monitoring potential claim exposures
Aligning staffing resources
Ensuring access to liquidity
Why it Matters
This approach supports regulator efforts without disruption and preserves the guaranty system’s ability to step in seamlessly if insolvency occurs.
Key Takeaway:
Early readiness protects consumers, strengthens recovery, and ensures stability—no matter the outcome.