Key Takeaways
- AIGA protects Alabama policyholders when P&C insurers become insolvent
- AIGA covers claims up to $300,000 for most covered claims per occurrence
- Workers' compensation claims are covered up to statutory limits
- AIGA does NOT cover surplus lines, ocean marine, title insurance, or warranty plans
- Producers are prohibited from using AIGA coverage as a selling point
Alabama Insurance Guaranty Association (AIGA)
The Alabama Insurance Guaranty Association (AIGA) provides a safety net for Alabama residents when property and casualty insurance companies become insolvent.
Purpose and Function
AIGA exists to:
- Protect policyholders of insolvent P&C insurers
- Pay covered claims up to statutory limits
- Provide continuity for covered claims
- Maintain public confidence in insurance system
How AIGA Works
When an admitted P&C insurer becomes insolvent:
- Court Action - Insurer placed in liquidation by court order
- AIGA Activated - Takes responsibility for covered claims
- Claims Processed - AIGA evaluates and pays covered claims
- Assessments Made - Member insurers fund payments through assessments
Key Definition: Insolvent Insurer
An insurer is insolvent when:
- Unable to pay obligations as they come due
- Court has issued order of liquidation
- Insurer was licensed (admitted) in Alabama at time of insolvency
AIGA Coverage Limits
AIGA provides coverage up to specific statutory limits:
Maximum Limits by Claim Type
| Coverage Type | Maximum Per Occurrence |
|---|---|
| Most P&C Claims | $300,000 |
| Workers' Compensation | Statutory benefits (no cap) |
| Property Damage | $300,000 |
| Liability Claims | $300,000 |
| Auto Claims | $300,000 |
Important Limitations
- $300,000 maximum per claimant per occurrence
- $100 deductible may apply to first-party property claims
- Net worth deduction for commercial claimants over $25 million
- Coverage limited to Alabama residents and risks
- Claims must have been valid under original policy
Exam Tip: Remember $300,000 as the standard AIGA limit for most P&C claims. Workers' comp has no dollar cap - it pays statutory benefits.
What AIGA Covers
Covered Policies
AIGA covers claims under these policy types from admitted insurers:
| Covered | Examples |
|---|---|
| Homeowners | HO-3, HO-5, dwelling fire |
| Auto | Personal and commercial auto |
| General Liability | CGL, premises liability |
| Commercial Property | BOP, commercial package |
| Workers' Compensation | All employer WC policies |
| Inland Marine | Most inland marine coverage |
| Umbrella/Excess | Personal and commercial |
What AIGA Does NOT Cover
Excluded from AIGA Coverage
| Not Covered | Reason |
|---|---|
| Surplus Lines | Non-admitted insurers |
| Self-Insured Plans | Not insurance policies |
| Title Insurance | Separate guaranty fund |
| Ocean Marine | Excluded by statute |
| Health Insurance | Separate life/health association |
| Life Insurance | Separate life/health association |
| Warranty Plans | Not insurance |
| Mortgage Guaranty | Excluded |
| Credit Insurance | Excluded |
| Fidelity/Surety | Generally excluded |
Other Exclusions
- Amounts exceeding policy limits
- Claims by affiliates of insolvent insurer
- Amounts already paid by insolvent insurer
- Claims by reinsurers
- Punitive or exemplary damages
AIGA Funding
AIGA is funded through assessments on member insurers:
Assessment Process
| Aspect | Details |
|---|---|
| Who Pays | All admitted P&C insurers in Alabama |
| Based On | Direct written premium in Alabama |
| Maximum | 2% of premium per year per account |
| Accounts | Separate by line of insurance |
| Recoupment | May be recovered through rate increases |
Assessment Accounts
AIGA maintains separate accounts:
- Workers' Compensation Account
- Auto Insurance Account
- Homeowners/Property Account
- All Other P&C Account
Each account pays claims from its respective line.
Producer Restrictions - CRITICAL
Advertising Prohibition
Alabama law prohibits producers from:
- Using AIGA coverage as a selling point
- Advertising guaranty association protection
- Implying policies are "guaranteed" by AIGA
- Comparing AIGA to FDIC bank insurance
- Suggesting choosing insurer based on AIGA
- Stating AIGA makes all insurers equally safe
What Producers CAN Do
- Answer direct questions accurately
- Explain AIGA exists if specifically asked
- Provide factual coverage limits if asked
- Direct clients to AIGA for more information
Exam Tip: This is frequently tested! Producers CANNOT use AIGA as a selling point. It's not a competitive advantage since all admitted insurers participate.
Claims Process Under AIGA
When an Insurer Becomes Insolvent
- Notice - AIGA notifies known policyholders
- Deadline - Claims must be filed by statutory deadline
- Submission - Claims submitted directly to AIGA
- Evaluation - AIGA reviews for coverage and limits
- Payment - Covered claims paid per statutory limits
- New Coverage - Policyholder must find replacement insurer
Filing a Claim with AIGA
| Step | Action |
|---|---|
| 1 | Submit proof of claim form |
| 2 | Provide policy documentation |
| 3 | Submit evidence of loss |
| 4 | Cooperate with investigation |
| 5 | Receive determination |
| 6 | Appeal if disputed |
Priority of Claims
AIGA pays claims in order of priority:
- Workers' compensation claims
- Personal lines claims (under $25,000)
- All other covered claims
Net Worth Deduction
For Large Commercial Claimants
Alabama applies a net worth deduction:
- Applies to insureds with net worth over $25 million
- Coverage may be reduced proportionally
- Encourages large businesses to self-insure or use excess
- Does NOT apply to workers' compensation claims
- Does NOT apply to personal lines
Calculation
For commercial claimants with high net worth:
- Net worth over $25 million reduces AIGA obligation
- Net worth over $50 million may eliminate coverage entirely
- Exact formula set by AIGA board
Summary Table
| Topic | Key Point |
|---|---|
| Coverage Limit | $300,000 per occurrence (most claims) |
| Workers' Comp | Statutory limits - no dollar cap |
| Surplus Lines | NOT covered |
| Self-Insurance | NOT covered |
| Life/Health | Separate association |
| Selling Point | PROHIBITED to use as selling point |
| Funding | Assessments on member insurers |
What is the maximum amount AIGA will pay for most P&C claims?
Which type of policy is NOT covered by AIGA?
Can an Alabama P&C producer use AIGA protection as a reason to buy a policy?
How is AIGA funded?
What is the AIGA coverage limit for workers' compensation claims?
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