Members of the insurance industry took heart over the weekend when Lt. Gov. Gerard Luz James opposed the administration's proposal to tap the Guaranty Fund for government salary increases. James took his stand as the insurance commissioner.
John Harper, spokesman for the V.I. Insurance Association, said the group supports teachers and other government workers getting salary increases, but not from the Guaranty Fund.
The fund is financed largely by a 5 percent tax on insurance premiums. It is a safety net for policyholders who could otherwise be left without coverage if their insurance company fails for any reason. If the fund is not large enough to cover claims in the event of a company default, then other local insurance companies must kick in more.
The Guaranty Fund grows by about $14 million a year. Harper said it currently has $42 million to $45 million.
However, that sum can be eroded quickly. After Hurricane Hugo, when two companies became insolvent, the fund covered "easily more than $50 million," Harper said.
One proposal includes capping the fund at $40 million instead of the current $50 million. Also under consideration is using the estimated $14 million a year income into the fund as collateral for a loan. The borrowed money would finance a "Salary Step Increase Fund."
"If they're going to raid the fund, it leaves the other companies at risk" Harper said. "The property and casualty insurance market in the Virgin Islands is quite tenuous. The companies that do business here are interested in a well-managed, well-regulated industry."
Without it, he said, some may pull out. That would decrease the availability of insurance and increase its costs.
This is not the first time the government has cast a hungry eye on the Guaranty Fund.
"My understanding is that it's been raided several times," Harper said. At least this time, he said, the administration is openly discussing the issue before taking action.
The insurance industry is not expected to take any legal action to protect the fund. Instead it is relying on lobbying efforts with senators and the governor.
