What is the purpose of a Security Fund in the context of insurance companies?

The purpose of a Security Fund in the context of insurance companies is to provide a financial resource that ensures claims can still be paid when an insurance company becomes insolvent. This is crucial for maintaining consumer trust and stability within the insurance market. When an insurer can no longer meet its obligations to policyholders due to financial difficulties, the Security Fund steps in to honor these claims, thereby protecting consumers and ensuring they receive the benefits they are entitled to even if their specific insurer is unable to do so.

The establishment of such funds is an essential regulatory measure designed to provide a safety net for policyholders, ensuring that individuals who have legitimately filed claims are not left without compensation due to circumstances beyond their control. This function is critical in maintaining the overall health of the insurance sector, as it helps prevent a loss of confidence in the ability of insurance providers to fulfill their promises.