Establishes a Framework under the Illinois Insurance Code for the Transfer of Insurance Business Portfolios, Including Notice Requirements and Application Procedures, to Ensure Policyholder Protection
The insurance industry is always evolving, and with change comes the need for robust laws that protect consumers and ensure smooth transitions when companies shift their business strategies. One such shift involves the transfer of insurance portfolios — entire blocks of insurance policies — from one insurer to another. This can happen due to company restructuring, market exit, mergers, or financial optimization.
To address this complex process, the state of Illinois has implemented a legal framework called the Insurance Business Transfer (IBT) Law under the Illinois Insurance Code. This law provides detailed procedures for transferring insurance business portfolios, while making policyholder protection the top priority.
This blog post explains what the Insurance Business Transfer Law is, how it works, who it affects, and why it’s so important.
What Is an Insurance Business Transfer?
An Insurance Business Transfer (IBT) is a legal process where an insurance company transfers an entire portfolio of policies — including all obligations and rights — to another insurance company. This is different from simply selling assets or reinsurance agreements. An IBT transfers the legal responsibility for the policies to a new company, with court approval.
The Illinois IBT Law was introduced to give insurance companies a clear, court-supervised path to make these transfers legally binding and transparent. At its core, this law is designed to ensure that policyholders are treated fairly and kept fully informed throughout the transfer process.
Why Was the IBT Law Created in Illinois?
Illinois is home to a robust insurance market. With many insurers operating in or out of the state, regulators recognized the need for a formal legal structure to manage insurance business transfers.
Before the IBT framework, there was no standardized way to transfer books of business from one insurer to another. Companies relied on mergers, assumption reinsurance, or other more complex and uncertain legal mechanisms. These approaches often raised concerns about regulatory oversight, policyholder consent, and long-term responsibility.
By creating the IBT Law, Illinois offers:
- Legal certainty for insurance companies
- A clear process that includes public notices and regulatory review
- Policyholder protections as the centerpiece of the law
This aligns Illinois with other global jurisdictions like the UK and Vermont, where insurance business transfer laws are already in place.
Key Features of the Illinois Insurance Business Transfer Law
The Illinois IBT Law is structured with several core components that ensure fair, transparent, and secure transfers:
1. Application Process
The transferring insurer (known as the transferor) must submit a detailed application to the Illinois Department of Insurance (IDOI). This application must include:
- The IBT plan, outlining the scope and nature of the transfer
- Financial and actuarial information from both the transferor and the receiving insurer (the transferee)
- Statements showing that the transferee has sufficient assets to handle the obligations
- A summary for policyholders explaining what the transfer means for them
Once the IDOI reviews the application and deems it complete, the insurer can file a petition with the Circuit Court of Cook County.
2. Court Approval
The IBT Law requires that transfers be approved by a court. The process includes:
- A preliminary hearing, where the court decides whether to move forward with a full review
- A public notice period, during which policyholders and interested parties can submit objections
- A final hearing, where the court determines whether the transfer is fair, reasonable, and not detrimental to policyholders
This court-supervised model ensures impartiality and transparency.
3. Notice Requirements
One of the strongest elements of the IBT Law is its notice requirements. The law mandates:
- Direct written notice to all affected policyholders
- Publication of the transfer plan in newspapers or other media outlets
- Availability of transfer details for public review
Policyholders must receive clear, understandable information about what the transfer means, their rights, and how to raise objections if they choose to do so.
4. Independent Expert Review
The court must appoint an independent expert, usually an actuary or insurance professional, to evaluate the proposed transfer. This expert’s job is to:
- Assess the solvency and financial stability of the transferee
- Review policyholder protections
- Determine whether any groups of policyholders would be negatively affected
This third-party opinion adds a layer of objectivity to the court’s final decision.
How the IBT Law Protects Policyholders
The Illinois IBT Law places policyholder protection at the heart of its framework. Here’s how:
✅ Transparency
Policyholders are notified early and have full access to the transfer plan, including FAQs and explanatory summaries in plain language. This transparency allows them to make informed decisions and raise concerns if necessary.
✅ Objection Rights
Any policyholder who objects to the transfer has the right to submit a formal objection to the court. The court must consider all objections at the final hearing.
✅ No Loss of Coverage
An IBT cannot result in any policyholder losing coverage. The terms, benefits, and rights under the policy must remain unchanged. Only the responsible insurer changes.
✅ Financial Oversight
The IDOI and the court require financial proof that the transferee is able to meet all obligations. This includes actuarial analysis, financial reporting, and compliance with capital requirements.
Who Can Use the IBT Law?
The law is primarily intended for Illinois-domiciled insurance companies, but it can also apply to foreign insurers under certain conditions. It’s especially useful in cases where:
- A company wants to exit a line of business (e.g., workers’ comp or long-term care)
- A company is restructuring or merging
- A “run-off” book of old policies is being moved to a specialist insurer
This process also benefits companies looking to acquire legacy blocks of business without needing to buy an entire company.
Benefits of the Illinois IBT Law
🔹 For Insurance Companies:
- Reduces administrative burden of legacy policy management
- Enables corporate restructuring or strategic exits
- Provides a secure, court-approved process for transferring obligations
🔹 For Policyholders:
- Guarantees legal and financial protections
- Offers transparency and notice
- Provides objection rights and independent review
🔹 For Regulators and the State:
- Promotes stability in the insurance market
- Aligns Illinois law with international best practices
- Enhances oversight and consumer confidence
How Illinois Compares to Other States
Illinois joins a short list of U.S. states, including Vermont and Rhode Island, that have adopted IBT laws. However, the Illinois law is especially noteworthy because it provides a comprehensive court-supervised process, which gives it more legal strength and consumer trust.
Unlike assumption reinsurance agreements (which often require policyholder consent), an IBT under Illinois law can move forward with court approval even if some policyholders object — as long as the court finds the transfer fair and non-prejudicial.
Why This Law Matters More Than You Think
The Illinois Insurance Business Transfer Law is a forward-thinking piece of legislation that meets the modern demands of the insurance industry while prioritizing the rights and protections of policyholders. It brings clarity to complex transactions and gives all parties — insurers, regulators, and consumers — the confidence that transfers will be handled transparently and responsibly.
As insurance companies continue to adapt to changing markets and regulatory expectations, laws like Illinois’ IBT framework will play a key role in ensuring long-term stability and consumer protection.
If you are an insurer considering a portfolio transfer, or a policyholder who has received notice of a potential IBT, it’s important to seek legal advice to fully understand your rights and responsibilities under the new law.
Disclaimer
This blog post is for informational purposes only and does not constitute legal advice. The content herein is not intended to create, and receipt of it does not constitute, an attorney-client relationship. For advice specific to your situation, please consult with a licensed attorney experienced in insurance or regulatory law in Illinois.
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