A mutualized arrangement compensating the policyholders of a failed insurer, within limits that never reproduce the cover lost.
A policyholder guarantee fund steps in when an insurer is wound up and can no longer meet its obligations, paying compensation funded by contributions from undertakings that remain solvent. It protects the individual policyholder and, more importantly, prevents a failure from triggering mass cancellations at competitors, which would turn an insolvency into a crisis of confidence. Three limits must be understood before relying on it. Cover is capped, often per policyholder and per contract, so a heavy loss is only partly indemnified. The scope varies sharply between lines and countries, with compulsory motor liability and life assurance better protected than commercial risks. And payment takes months or years, during which the policyholder carries the loss alone. For a company the practical consequence is that counterparty quality remains a selection criterion, since a guarantee fund never makes two insurers of different strength equivalent.
French Law no. 99-532 of 25 June 1999 created the guarantee fund for personal insurance, funded by member undertakings and capped per policyholder and per failed insurer, following the debates opened by the life insurer failures of the preceding decade.
guarantee fund, fonds de garantie, guaranty association, FGAP