2003 - 2004 LEGISLATURE
November 20, 2003 - Introduced by Representative Ladwig, cosponsored by
Senator Schultz, by request of Office of the Commissioner of Insurance.
Referred to Committee on Insurance.
1An Act to repeal
617.225 (5), 632.435 (12), chapter 641, 646.01 (1) (b) 9. a., 2
646.01 (1) (b) 9. b., 646.01 (1) (b) 9. c., 646.01 (1) (b) 9. d., 646.31 (2) (b) 1., 646.31 3
(2) (b) 2. b., 646.31 (2) (b) 3., 646.31 (3), 646.31 (5), 646.35 (2), 646.51 (2), 646.51 4
(3) (b) and 646.73; to renumber
646.51 (3) (a) (title);
to renumber and amend
601.41 (4) (a), 611.26 (4), 612.22 (3), 646.01 (1) (b) 9. (intro.), 646.11 (1), 646.31 6
(10), 646.31 (13), 646.33 (1), 646.35 (3) (intro.) (except 646.35 (3) (title)), 646.35 7
(3) (a), 646.35 (3) (b), 646.35 (3) (c), 646.35 (4), 646.51 (1), 646.51 (3) (a) 1., 646.51 8
(3) (a) 2. and 646.51 (4); to consolidate, renumber and amend
646.31 (2) (b) 9
2. (intro.) and a.; to amend
600.03 (21), 601.31 (1) (k) (intro.), 601.465 (3) 10
(intro.), 601.64 (1), 609.98 (1), 609.98 (4) (a), 609.98 (4) (b), 611.56 (1), 611.56 (2), 11
612.22 (title), 612.22 (1), 612.22 (4), 612.22 (6), 617.225 (1), 632.435 (1) (intro.), 12
632.435 (1) (a), 632.435 (1) (b), 632.435 (5), 645.58 (1) (intro.), 646.12 (2) (d), 13
646.12 (2) (f) 2., 646.12 (2) (f) 3., 646.12 (4), 646.13 (title), 646.13 (1) (intro.), 14
646.13 (1) (b), 646.13 (2) (intro.), 646.13 (2) (b), 646.13 (2) (c), 646.13 (2) (d),
646.13 (3) (intro.), 646.13 (3) (a), 646.13 (3) (b), 646.13 (3) (c) (intro.), 646.13 (3) 2
(c) 2., 646.13 (4), 646.15 (title), 646.15 (1) (a) (intro.), 646.15 (1) (a) 1., 646.15 (1) 3
(a) 2., 646.15 (1) (a) 4., 646.21 (2), 646.31 (2) (a) 1., 646.31 (2) (a) 2., 646.31 (2) 4
(f) (title), 646.31 (2) (f) 2., 646.31 (6) (a), 646.31 (6) (b), 646.31 (7), 646.31 (8), 5
646.31 (9) (a), 646.31 (9) (b), 646.31 (9) (c), 646.31 (9) (d), 646.31 (11), 646.32 (1), 6
646.325 (1), 646.325 (2) (intro.), 646.325 (2) (a) (intro.), 646.325 (2) (b), 646.33 7
(2), 646.33 (3), 646.35 (3) (title), 646.35 (5), 646.35 (6) (a), 646.35 (6) (b), 646.35 8
(6) (bm), 646.35 (6) (c) (intro.), 646.35 (6) (c) 1. (intro.), 646.35 (6) (c) 1. b., 646.35 9
(6) (c) 2. (intro.), 646.35 (6) (c) 2. b., 646.51 (3) (c), 646.51 (5), 646.51 (6), 646.51 10
(7) (a), 646.51 (8), 646.51 (9) (b) 1., 646.51 (9) (b) 2., 646.60 (1) (a) and 646.61 (2); 11to repeal and recreate
632.435 (4), 646.01 (1) (b) 1. and 646.01 (1) (b) 11.; and 12to create
601.31 (1) (tc), 601.41 (4) (a) 1., 601.41 (4) (a) 2., 611.26 (4) (a), 611.26 13
(4) (b), 612.13 (1m), 612.22 (3) (b), 628.347, 646.01 (1) (a) 2. k., 646.01 (1) (a) 2. 14
L., 646.01 (1) (b) 11m., 646.01 (1) (b) 15., 646.01 (1) (b) 16., 646.01 (1) (b) 17., 15
646.01 (1) (b) 18., 646.03 (1m), 646.03 (2n), 646.03 (2p), 646.03 (4), 646.03 (5), 16
646.11 (1) (d), 646.11 (1) (e), 646.13 (2) (g), 646.16, 646.31 (1) (d) 10. and 11., 17
646.31 (2) (g), 646.31 (9) (cm), 646.31 (10) (b), 646.31 (13) (b), 646.31 (13) (c), 18
646.31 (13) (d), 646.33 (1) (b), (c) and (d), 646.33 (2m) (b), 646.35 (4) (b), 646.35 19
(7), 646.35 (8), 646.35 (9), 646.35 (10), 646.51 (1c), 646.51 (3) (am) 2. and 646.51 20
(4) (a), (b) and (d) of the statutes; relating to: requirements for
21recommendations made by insurers and insurance intermediaries to senior
22consumers in annuity transactions; committees of the board of directors of
23domestic stock and mutual corporations; annuity minimum nonforfeiture
24amount; merger of town mutual and domestic mutual insurance corporation
1into a town mutual; the insurance security fund; other miscellaneous changes
2to the insurance provisions; and granting rule-making authority.
Analysis by the Legislative Reference Bureau
Suitability of recommendations
This bill prohibits an insurance intermediary, or insurer if no intermediary is
involved, from making a recommendation to a person who is 65 years old or older
(senior consumer) about purchasing or exchanging an annuity that results in the
purchase or exchange of an annuity in accordance with the recommendation, unless
the intermediary or insurer has reasonable grounds to believe that the
recommendation is suitable for the senior consumer based on facts disclosed by the
senior consumer. Before making a recommendation, the intermediary or insurer
must make reasonable efforts to obtain information from the senior consumer about
his or her financial status, tax status, and investment objectives.
The bill requires insurers either to ensure that a system for supervising
annuity transaction recommendations that are made to senior consumers is
established and maintained or to establish and maintain its own system, and
provides certain requirements with which the supervisory system must comply. The
bill authorizes the commissioner of insurance (commissioner) to order an insurer or
intermediary to take corrective action if a senior consumer is harmed by a violation
of the provisions regulating annuity transaction recommendations and authorizes
the commissioner to promulgate rules to reduce or eliminate penalties for violations
of the provisions if, after a violation is discovered, corrective action is promptly taken
for the senior consumer.
Insurance security fund
This bill makes a number of changes to the insurance security fund provisions
to make them more uniform with the insurance guaranty fund laws of other states,
thus facilitating the administration of liquidations that involve national insurers.
In general, the insurance security fund (fund), which is created as a nonprofit
organization and funded through assessments paid by insurers covered under the
fund, pays claims against insolvent insurers.
Current law specifies types of insurers and insurance that are not covered
under the fund. The bill adds some exclusions, including the state Health Insurance
Risk-Sharing Plan, the patients compensation fund, a warranty or service contract,
any contractual liability policy issued to a warrantor or service contract provider, and
the deductible portion of a claim under a liability or worker's compensation
insurance policy. The bill clarifies that, although reinsurance is generally not
covered under the fund, reinsurance ceded by an assessable town mutual and
reinsurance for which the reinsurer has issued assumption certificates are covered.
The bill transfers some of the responsibilities of the fund's board of directors
(board) to the fund, including establishing procedures and acceptable forms of proof
for eligible claims, exercising the powers of the liquidator in any action against an
insurer in liquidation, and having standing to appear in any liquidation proceeding
in this state involving an insurer in liquidation. The bill also gives the fund the
authority to appear or intervene before a court or agency of any other state that has
jurisdiction over an impaired or insolvent insurer with respect to which the fund is
or may become obligated.
Current law specifies the types of claims that are payable by the fund. The bill
adds a number of types of claims that are not payable, including a claim based on
marketing materials, a claim for bad faith damages, and a claim based on
misrepresentations regarding policy benefits. The bill specifies the eligibility
requirements for claims of payees under structured settlement annuities, which
current law does not address. The bill also eliminates a $200 deductible that is
required under current law before the fund pays any portion of a claim.
Under current law, the fund may recover from a person any amount paid on
behalf of the person to a third party. The bill provides that if the fund defends a claim
against the person by a third party, the fund may also recover from the person the
costs and expenses incurred in defending the claim. The bill expands on the
subrogation rights of the fund under current law.
Under current law, the fund may guarantee, assume, or reinsure coverage
under an annuity or a life or disability insurance policy. The bill prohibits the fund
from providing such coverage, however, to any person who has coverage under any
other state's security fund statutes. The bill also provides authority for the fund to
succeed, if it so elects, to an insolvent insurer's rights and obligations under a
contract covered by the fund under an indemnity reinsurance agreement.
Current law generally provides that assessments paid by insurers to support
the fund are based on premium written in the year before the year in which the order
of liquidation is entered. The bill changes the assessment base to the year preceding
the year in which the assessment is approved by the board. Under current law the
maximum assessment in any calendar year is two percent of premium. Under the
bill the maximum assessment in any calendar year may not exceed two percent of
average annual premium received in this state during the three calendar years
preceding the year in which the liquidation order is entered.
Under current law, one or more town mutual corporations may merge with a
single domestic mutual corporation to form a single domestic mutual corporation.
Approval of the merger must be given by the commissioner, based on a plan of merger
that is filed with the commissioner.
This bill provides that, if a domestic mutual merging with one or more town
mutuals is nonassessable, the merging mutuals must form a domestic mutual but,
if the merging domestic mutual is assessable, the merging mutuals may form either
a domestic mutual or a town mutual. If the merging mutuals form a town mutual,
the plan of merger filed with the commissioner must include a time schedule for
bringing the resulting town mutual into compliance with the insurance laws relating
to town mutuals. The commissioner may approve any reasonable schedule not
exceeding three years.
The bill also provides that, if the board of a town mutual has fewer than nine
directors, no more than one director may be an employee or representative of the
town mutual and that in no case may employees and representatives of a town
mutual constitute a majority of its board. These limitations, which apply under
current law to domestic mutual corporations, will apply to town mutuals in two years
unless the commissioner allows further delay for up to one year.
Minimum nonforfeiture amount
Under current law, the minimum amount that must be paid under an annuity
contract (called the minimum nonforfeiture amount) is calculated by using an
interest rate of three percent. This bill changes the interest rate that is used to
calculate the minimum nonforfeiture amount to an indexed rate that is based on the
monthly yield on actively traded U.S. treasury securities, adjusted to a constant
maturity of five years (five-year constant maturity treasury rate), as published by
the Federal Reserve Board. The actual rate used, however, may not exceed three
percent or be lower than one percent. If the contract so provides, the interest rate
may be redetermined at different times during the term of the contract. Thus, the
interest rate used over the term of the annuity contract may be the five-year
constant maturity treasury rate at times and three percent or one percent at other
Under current law, the board of directors of an insurer that is a domestic stock
or mutual corporation may appoint committees to exercise various powers of the
board of directors in the management of the business and affairs of the corporation.
Generally, a committee of the board must consist of three or more directors. This bill
adds that such a committee may include one or more nonvoting members who are not
The bill makes a few additional miscellaneous changes including: specifically
providing that orders of the commissioner may be for remedial measures or
restitution; clarifying that, in addition to information obtained from insurance
regulators, the Office of the Commissioner of Insurance (OCI) may refuse to disclose
and prevent any other person from disclosing information provided by OCI to those
insurance regulators; limiting the amount that an insurance corporation may invest
in a subsidiary; removing an exemption for payment of extraordinary dividends by
a domestic insurer to a domestic insurer from a requirement to report the payment
to the commissioner at least 30 days in advance; and providing for an annual fee of
$500 to be listed by the commissioner for surplus lines insurance. The bill also
repeals chapter 641, relating to the authority of the commissioner to conduct
examinations and impose certain enforcement measures with respect to employee
benefit plans, because it is largely preempted by the federal Employee Retirement
Income Security Act.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB681, s. 1
600.03 (21) of the statutes is amended to read:
"Form" means a policy, group certificate,
or application prepared 3
for general use and does not include one specially prepared for use in an individual 4
case. See also "policy".
AB681, s. 2
601.31 (1) (k) (intro.) of the statutes is amended to read:
(k) (intro.) For filing an annual statement
, except as provided in s.
AB681, s. 3
601.31 (1) (tc) of the statutes is created to read:
(tc) For each annual listing by the commissioner for surplus lines 10
insurance under s. 618.41 (6) (d), $500.
AB681, s. 4
601.41 (4) (a) of the statutes is renumbered 601.41 (4) (a) (intro.) 12
and amended to read:
(a) (intro.) The commissioner shall issue such prohibitory, 14
and other orders as are necessary to secure compliance with the law. An
15order requiring remedial measures or restitution may include any of the following:
AB681, s. 5
601.41 (4) (a) 1. of the statutes is created to read:
(a) 1. Remedial measures or restitution under s. 628.347 (5).
AB681, s. 6
601.41 (4) (a) 2. of the statutes is created to read:
(a) 2. Remedial measures or restitution to enforce s. 611.72 or ch. 20
617, including seizure or sequestering of voting securities of an insurer owned 21
directly or indirectly by a person who has acquired or who is proposing to acquire 22
voting securities in violation of s. 611.72 or ch. 617.
AB681, s. 7
601.465 (3) (intro.) of the statutes is amended to read:
(intro.) Testimony, reports, records, communications,
information that are obtained by the office from, or provided by the office to,
the following, under a pledge of confidentiality or for the purpose of assisting in the 2
conduct of an investigation or examination:
AB681, s. 8
601.64 (1) of the statutes is amended to read:
601.64 (1) Injunctions and restraining orders.
The commissioner may 5
commence an action in circuit court in the name of the state to restrain by temporary 6
or permanent injunction or by temporary restraining order any violation of chs. 600 7
to 655, s. 149.13 or 149.144, any rule promulgated under chs. 600 to 655 or any order 8
issued under s. 601.41 (4). Except as provided in s. 641.20, the The
need not show irreparable harm or lack of an adequate remedy at law in an action 10
commenced under this subsection.
AB681, s. 9
609.98 (1) of the statutes is amended to read:
609.98 (1) Definition.
In this section, "premiums" has the meaning given 13
under s. 646.51 (3) (a) 1 (1c) (c)
AB681, s. 10
609.98 (4) (a) of the statutes is amended to read: