While it is unlikely that an insurance company will become insolvent, it can and has happened. In most cases, this occurs when a company is too saturated in one area and suffers more loss than what it can pay. Think of floods, forest fires, and other disaster situations where many people will have claims at the same time.
When this does happen, insurance carriers are still responsible for any payouts they owe to their customers. Every state has its own Insurance Commissioner whose job is to provide oversight and enforce that state’s insurance laws. The Insurance Commissioner will step in and attempt to resolve the situation. If it cannot be resolved, the company will be declared insolvent and shut down, and assets will be sold to collect as many funds as possible. At this stage the government will take over as the “insurance carrier,” and at some point it will help customers get coverage through other carriers. The main point is, your claim will still get paid.
It is a good idea to check your carrier’s financial-stability rating through AM Best or any of the other major rating agencies.