Office of the Commissioner of Insurance – Agency 145
The Office of the Commissioner of Insurance proposes an order to repeal Ins 3.70, 5.45 (1) (b), 6.52 Form B, 8.42 (4) (a), (b) and (7) (c) (1), 8.59 (4), 8.60 (1) (a), (d) and (e), 8.61 (2) and (6), 8.68 (3) (b) and (c) and 9.40 (1) (a), (5) and (6); to renumber, consolidate and amend Ins 8.42 (4) (intro.) and (c) and 8.42 (4), 9.40 (1) (intro.) and (b) and 9.40 (1); to amend Ins 3.651 (2) (Note), 3.75 (6), 6.52 (5), ch. 6 Appendix 1 and Appendix 2, 7.02, 7.06 (Note), 8.40, 8.42 (13), 8.68 (4), 16.01 (4) (c), (6) (a) and (7) (a) and (b), 50.01 (1r) and 50.14 (2); and to create Ins 16.01 (7) (c), 50.01 (6g), 50.15 (2m), 50.155 and 50.18 (8), Wis. Adm. Code, relating to certain reporting requirements, electronic filing and obtaining information, increasing minimum annual assessment for OCI insurer examinations, other technical corrections and affecting small business.
The statement of scope for this rule SS 069-15 was approved by the Governor on July 23, 2015, published in Register No. 716A2 on August 10, 2015, and approved by the Deputy Commissioner on August 26, 2015.
  1.   Statutes interpreted:
  2.   Statutory authority:
  3.   Explanation of OCI’s authority to promulgate the proposed rule under these statutes:
The statutory authority for these rules are ss. 227.11 (2) (a) and 601.41(3), Stats., which provide the commissioner’s rulemaking authority in general.
Specifically, s. 611.54 (1), Stats., provides authority for the commissioner’s rulemaking authority for s. Ins 6.52 rule change regarding insurer reporting requirements of biographical data on insurance company officers and directors. Section 611.54 (1) states “the name of any person selected as a director or principal officer of a [insurance] corporation, together with such pertinent biographical and other data as the commissioner requires by rule shall be reported to the commissioner immediately after selection.”
Specific rulemaking authority for Ins 6.85 rule change: Section 631.28(1), Stats., requires all insurers to provide notice to its insureds of the right to file a complaint with OCI. Section 631.28 (2), Stats., states: “The commissioner shall promulgate rules specifying the contents of the notice… under sub. (1)… The rules shall describe how a policyholder, insured or other person may make a complaint with the office…”
Specific rulemaking authority for Ins Chapter 7 and (Note): Section 227.01 (13), Stats., defines a “rule” to mean “a regulation, standard, statement of policy,… which has the effect of law and which is issued by the agency to implement, interpret, or make specific legislation enforced of administered by the agency…” Section 227.01 (3), Stats., further provides the definition of a “rule” “does not include …any action or inaction of an agency… which:
  (j) Relates to the form and contents of reports, records or accounts of a state…agency.
  (q) Is a form the content or substantive requirements of which are prescribed by a rule or statute.
Also, s. 227.23, Stats., provides: “A form imposing a requirement which meets the definition of a rule shall be treated as a rule for the purposes of this chapter, except that: (3) It need not be published in the code and register in its entirety, but may be listed by title or description together with a statement as to how it may be obtained.”
Specific rulemaking authority for Ins 9.40 rule changes: Section 609.20 (1m), Stats., provides the commissioner “may promulgate rules relating to …defined network plans” to effectuate certain purposes of Chapter 609 of the statutes. Further, s. 609.38, Stats., provides “the commissioner shall by rule develop standards for defined network plans for compliance with the requirements of this chapter.”
Specific rulemaking authority for Ins 16.01 (4) (c), 6 (a) and (7) (a), (b), (c) rule changes: Section 601.45 (1), Stats., provides the “reasonable costs of examinations … shall be paid by examinees… as the commissioner may by rule prescribe.”
Specific rulemaking authority for Ins. 50.14 (2), Ins 50.15, 50.155, and 50.18 rule changes: Section 601.42, Stats., authorizes the commissioner to request statements, reports, and other information from regulated persons. Section 601.42 (2), Stats., authorizes the commissioner to prescribe forms for these reports. Sections 623.03 and 623.04, Stats., authorize the commissioner to promulgate rules regarding the valuation of assets and liabilities. Section 623.02 allows the commissioner to promulgate standards for accounting rules.
  4.   Related statutes or rules:
Please see listing of rules and related statutes noted in #3 above.
  5.   The plain language analysis and summary of the proposed rule:
This proposed rule makes a number of technical corrections to a number of current rules by inserting OCI’s current mailing address, adding OCI’s website so consumers may make complaints and obtain insurance forms electronically. This proposed rule deletes insurance forms no longer in use from the rule that lists insurance forms and repeals all rule references to the Health Insurance Risk Sharing Plan (HIRSP) which was eliminated by 2013 Act 20. Currently OCI has two different forms required to be filed by domestic insurers providing biographical information on new officers and directors –- one for an insurer before it is organized and a second form for new officers and directors after the insurer is organized. The proposed rule eliminates one form (form B) and replaces it with the more informative current form A. Therefore, the proposed rule requires form A to be filed for new officers and directors of insurers both before and after the insurer is organized.
This proposed rule eliminates as unnecessary in the current health insurance marketplace a requirement that all HMOs annually submit HEDIS (Health Plan Employer Data and Information Set) quality assurance data to OCI. Also eliminated is a requirement that a very limited number of defined network plans submit annually to OCI a “standardized data set” of quality outcome data.
Under current rules, each year OCI bills domestic insurers for their proportionate share of the estimated total cost of administering that year’s examinations program in an amount generally determined by comparing each insurer’s premium volume. The current rule provides that “in the event the sum of the previous year’s assessment exceeds the actual cost of administering the insurer examinations program, the amount of the excess shall be applied as an offset to the estimated cost for the next year’s examination program.” The proposed rule change provides that if the sum of a year’s billings for insurer examinations by OCI “differs” from the actual cost of administering the examinations program, the difference (plus or minus) will be applied as an “adjustment” to the estimated cost for the next year’s examinations program. The proposed rule also modernizes a rule section by making clear that the commissioner may obtain CPA work papers pertaining to an insurer’s annual audit in electronic form.
OCI financial examiners perform a financial examination of all domestic insurers at a minimum of once every five years. The proposed rule increases the minimum annual amount OCI may charge for its examinations of domestic insurers to an amount that more accurately reflects the actual minimum administrative costs of OCI examining domestic insurers. The new minimum amounts will also more equitably distribute the examination costs among insurers. The current minimum annual billing for OCI examinations is $1,000 for domestic insurers located primarily out of state and $300 for all other domestic insurers. These amounts have not been updated since 1999 and 1977, respectively. The proposed rule increases the annual minimum amount for domestic insurers located primarily out of state to $10,000 and the minimum amount for all other domestic insurers to $3,000 per year. This proposed rule change will not result in an increase to the aggregate amount charged the domestic insurance industry for administering OCI’s examinations program.
Finally, the proposed rule adopts an NAIC model law requiring large insurers (with over $500,000,000 of gross annual premiums) to have an independent internal audit function with an effective date of January 1, 2018. This is a good business and solvency practice, which most large insurers already have in place, to OCI’s knowledge. The rule is also anticipated to be an NAIC accreditation requirement. NAIC accreditation is an important benefit to the domestic insurance industry as it ensures that Wisconsin insurers are only subject to financial examination by Wisconsin as other state regulators will adopt Wisconsin’s financial examination if Wisconsin is an NAIC accredited state.
  6.   Summary of and preliminary comparison with any existing or proposed federal regulation that is intended to address the activities to be regulated by the proposed rule:
OCI is unaware of any proposed or existing federal regulation that is intended to address the activities to be regulated by this proposed rule.
  7.   Comparison of similar rules in adjacent states as found by OCI:
a) With respect to a minimum annual assessment for insurer examinations:
Illinois: 215 ILCS 5/Sec 3, 6, 7 and 9. Illinois does not have a set minimum assessment based on actual minimum cost of an examination in the way Wisconsin does. Illinois assesses all insurers, domestic and non-domestic, licensed to do business in the state. The assessment funds the cost of financial examinations and financial condition analyses and funds the costs and expenses of the Interstate Receivership Commission.
For domestic insurers, annual assessment amounts are variable and based on the amount of an insurer’s nationwide direct premiums or admitted assets (whichever is greater) and, in some cases, reinsurance assumed premiums. For example, on the low end, if the premium is less than $500,000 and there is no reinsurance assumed premium, the annual assessment equals $150. On the high end, if the premium is $100,000,000 or more, the annual assessment equals $37,500.
For non-domestic insurers, annual assessment amounts are also variable, and are based on the amount of an insurer’s Illinois direct premiums and nationwide reinsurance assumed premiums. Again, the minimum assessment is $150 on the low end of direct premium amount and $37,500 on the high end. Also, assessments billed to non-domestic insurers within the same affiliated group cannot exceed $250,000.
In addition to annual assessments, Illinois bills insurers for the following additional examination-related expenses:
1.   Electronic data processing costs;
2.   Lodging and travel expenses;
3.   Outside consultants/contractors used in examinations; and
4.   Performance examination costs (e.g. market regulation exams).
Iowa: Chptr 507.8, Iowa Code. Iowa does not use an annual assessment, so has no minimum assessment. Rather, upon completing an examination, the Iowa commissioner prepares a bill of all costs incurred in performing the examination and in preparing the subsequent report. The examined insurer is then responsible for paying the charged amount. Iowa uses outside contractors to conduct some of its out of state examinations.
Michigan: 500.224, mcl. Michigan assesses all insurers, domestic and non-domestic, licensed to do business in the state. The assessments fund the state’s insurance department operations, with two-thirds of every assessment going toward solvency regulation.
Annual assessment amounts are variable and based on a formula that accounts for all in-state annuity considerations written and all in-state direct premiums underwritten. Regardless of the formula output, the assessment cannot exceed 80% of the gross appropriations for the insurance bureau. Also, the minimum fee is $250, regardless of the formula output.
Furthermore, Michigan bills out-of-state insurers for the expenses and reasonable costs incurred in conducting an examination, for which Michigan often uses outside consultants/contractors.
Minnesota: 60A.03 subd 5, Minnesota Statutes. Minnesota does not use an annual assessment and so has no minimum annual assessment. Minnesota uses all outside contractors to conduct its examinations. All examined insurers are required to pay the “necessary expenses” of the persons engaged in the examination, including the per diem salaries of those persons.
b) With respect to proposed rule adopting NAIC model law section requiring large insurance companies to have internal audit function:
Illinois: Has not yet taken action to adopt the NAIC internal audit function requirement for larger insurers.
Iowa: Has not yet taken action to adopt the internal audit function requirement.
Michigan: Has not yet taken action to adopt the internal audit function requirement.
Minnesota: Has not yet taken action to adopt the internal audit function requirement.
  8.   A summary of the factual data and analytical methodologies that OCI used in support of the proposed rule and how any related findings support the regulatory approach chosen for the proposed rule:
With regard to increasing the minimum assessment amount for insurer examinations, there has been no increase in the minimum assessment amount since 1999 for domestic insurers primarily located out of state, and no increase since 1977 for all other domestic insurers. OCI made calculations resulting in a determination that its minimum cost to do an examination of a domestic company primarily located out of state is $10,000 per year and its minimum cost to do an examination of an in-state company is $3,000 per year.
OCI has determined that 14 of a total of 119 in-state companies were billed the current minimum assessment amount of $300 for 2016’s examinations program. Also, 19 of a total of 61 domestic insurers located primarily out-of-state were billed the current minimum of $1,000 for 2016’s assessment. The new minimum assessment amounts will more fairly and equitably distribute the costs of the examinations program among insurers.
  9.   Any analysis and supporting documentation that OCI used in support of OCI’s determination of the rule’s effect on small businesses under s. 227.114:
The proposed increase in minimum assessment amounts would have an impact on some domestic insurers. However, based on revenue and ownership structure, very few, if any, domestic insurers meet the definition of small businesses. Furthermore, OCI has delayed the applicability date of the rule changes increasing the minimum assessment amounts and the internal audit function requirement to February 1, 2018 and January 1, 2018, respectively, to allow insurers to make adjustments to comply with these two rule changes. Finally, a possible exemption may be available for a small business insurer under s. 601.45 (4), Stats., which provides that upon insurer request (or on commissioner’s own motion) the commissioner may pay all or a part of an examination from the appropriation under
s. 20.145 (1) (g) 1., Stats., when “the commissioner finds that imposition of the costs would place an unreasonable burden on the examinee.”
  10.   See the attached Private Sector Fiscal Analysis.
The rule changes will have no significant effect on the private sector regulated by OCI.
  11.   A description of the Effect on Small Business:
Links to Admin. Code and Statutes in this Register are to current versions, which may not be the version that was referred to in the original published document.