Central Guarantee Fund
Categories: Banking, Econ, Regulations
A hurricane levels your house. You’ve lost everything. Even your multi-colored collection of rubber, er...ducks.
Good thing you have insurance.
You file a claim, only to find out that the damage is so widespread that the insurance and reinsurance companies won’t be able to pay off all the claims. Your insurance company is going under. Your first thought is that you’re going to end up living in a tree. But you might find out that your state has something called a Central Guarantee Fund.
Think of a central guarantee fund as part bailout pot and part repo man. The state insurance regulators put money aside to pay off policyholders should an insurance firm be considered insolvent. The regulator will get a hold of the insolvent company's assets and move them to the central guarantee fund to pay policyholders. Then they’ll pay whatever money remains to customers making a claim.
