There is a notion that insurance companies have unlimited funds. This is not the case. Like every other company, they can go bust. There are protections that help prevent policyholders from being left high and dry.
Insurers are rated based on their financial strength and ability to pay out. Many contracts that require one of the parties have insurance will specify a minimum rating for the insurance company. With a Google search or a call to your agent you should be able to see how your insurer rates.
Insurers have insurance. It is called reinsurance. I must admit that I do not know much about reinsurance. Reinsurance is not (in my experience) relevant in disputes between an insurer and a policyholder, and I have never been asked to advise on a dispute between an insurer and a reinsurer.
“Admitted” carriers are backed by the government in case of default. Tomorrow’s lesson will discuss admitted carriers versus surplus lines.