Insurance involves a future performance contract in that prices are set before costs are known. Under the circumstances of competition, the characteristic of the uncertain insurance cost may cause some myopic insurers to enlarge their market share through cutthroat price competition. This might lead insurers into insolvency. To protect policyholders against loss due to insurer insolvencies, insurance guaranty funds have been adopted in most countries. From the viewpoint of risk management, guaranty funds protection can be classified as a measure of risk control as it not only reimburses policyholders but also reduces entire social losses to the minimum level. This paper investigates guaranty funds in the USA and in Japan. Several different features of guaranty funds between these two countries can be identified. The objective is to point out the better way to design guaranty funds that is incentive compatible for both insurers and policyholders.