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And even if a company were to fail outright, consumers are protected much in the way that routine bank deposits are guaranteed by the FDIC. Under a 40-year-old system, each state has an "Insurance Guarantee Fund" to which companies contribute that guarantees property, casualty, life and health claims if a company is insolvent. The maximum amount per claim varies by state and by the type of insurance, but it is as high as New York State's $1 million on property and casualty claims.
But insolvency is quite rare, Hartwig says. There have been about 600 such cases in more than 30 years, most of those small companies that were overwhelmed by natural disasters. Last year was a record low year for solvency problems in the industry and those all involved small companies that were still staggering under the weight of claims from Hurricane Katrina.
The jitters over insurance companies came to public attention this week, when stocks of both MetLife and The Hartford took a pummeling as they announced losses on their investments, particularly in the distressed mortgage sector. And the Wall Street Journal reported Thursday that the two companies had discussed merging, though the talks had not produced an agreement. Analysts for the credit rating company A.M. Best have downgraded their outlook for insurance companies, but they say the companies have weathered the financial crisis better than banks and investment houses so far. While warning that "nobody is immune" in such a dismal financial market, analyst Tom Rosendale says customers aren't facing an immediate collapse of the major insurance companies. "At the end of the day," he says, "I don't think people should be panicking about their insurance companies just yet."