PROPOSED ORDER OF THE OFFICE OF THE COMMISSIONER OF INSURANCE REPEALING, CONSOLIDATING RENUMBERING AND AMENDING, AND AMENDING A RULE
Rule No. Agency 145 – Ins 4.10 (3) (a), 4.10 (4), 4.10 (6) (b), 4.10 (7) (a) and 4.10 (8) (c), Wis. Adm. Code.
The statement of scope for this rule SS: 003-16, was approved by the Governor on January 7, 2016, published in Register No. 721A3, on January 19, 2016, and approved by the Commissioner on February 12, 2016.
ANALYSIS PREPARED BY THE OFFICE OF THE COMMISSIONER OF INSURANCE (OCI)
1. Statutes interpreted:
3. Explanation of OCI’s authority to promulgate the proposed rule under these statutes:
The Commissioner has the general authority to promulgate rules necessary to administer and enforce chs. 600 to 655, Wis. Stat., and as provided under ss. 227.11 (2) (a) and 601.41 (3), Wis. Stat. Further, s. 619.01 (1) (a), Wis. Stat., specifically authorizes the Commissioner to establish procedures and requirements for a mandatory risk sharing facility for basic property insurance coverages.
4. Related statutes or rules:
There are no existing statutes or rules that relate to this proposed rule.
5. The plain language analysis and summary of the proposed rule:
The Wisconsin Insurance Plan (WIP) is a residual property insurer that was created to provide basic property insurance on certain properties rejected by other insurers for coverage and is governed by s. Ins 4.10, Wis. Adm. Code. The Office of the Commissioner of Insurance (OCI) intends to update outdated provisions in the section based on recommendations from the WIP governing committee regarding obsolete coverages and insufficient maximum coverage limits. In addition, the proposed rule will make revisions to the structure of the governing board to allow WIP to operate in a more effective and efficient manner. Under the current rule WIP provides coverages for builder’s risk under s. Ins 4.10 (3) (a) 1., Wis. Adm. Code, and crime under s. Ins. 4.10 (3) (a) 2., Wis. Adm. Code. Both of these coverages have become obsolete as the standard market has done a good job in providing for these coverages. In the past 20 years WIP has not written a policy with a builder’s risk endorsement. In addition, WIP has only received approximately three applications for theft/burglary coverage in the past 30 years with none in the past 18 years. Accordingly, the proposed rule will delete these two coverages as they are no longer necessary.
As a point of clarification, this rule eliminates the stand alone theft/burglary coverage under s. Ins. 4.10 (3) (a) 2., Wis. Adm. Code. However, theft/burglary coverage could still be offered as part of a more comprehensive policy. For example, in a homeowners policy that covers multiple perils, theft may be one of the perils covered under the policy.
The proposed rule will also reduce the number of positions on the governing board to address changing circumstances and allow WIP to operate more effectively and efficiently. Section Ins 4.10 (6) (b), Wis. Adm. Code, currently provides for a governing board consisting of fifteen members. However, due to changing circumstances, including the amount of business WIP writes and the consolidation of associations, a fifteen member board is no longer warranted. The proposed rule will reduce the size of the board to 11 members with the following changes. First, the proposed rule will eliminate the position reserved for a member from the Alliance of American Insurers (AAI) and two of the four positions reserved for members of the Wisconsin Insurance Alliance (WIA) under s. Ins 4.10 (6) (b) 1., Wis. Adm. Code. The AAI no longer exists and WIA has indicated to OCI that two positions is a more appropriate level of representation in light of the overall desire to reduce the size of the governing board. In addition, the National Association of Independent Insurers (NAII) is being changed to the Property and Casualty Insurers of America to reflect the association’s new name after a merger with another association. The proposed rule will also eliminate one of the five consumer positions appointed by the Commissioner under s. Ins 4.10 (6) (b) 3., Wis. Adm. Code., which has remained vacant over the past year. Lastly, the proposed rule will reduce the required number for quorum from eight to six members under s. Ins 4.10 (7) (a) and (8) (c), Wis. Adm. Code., in light of the reduced board size. Accordingly, these changes will allow the governing board to operate more effectively and efficiently while still providing an adequate level of representation for the current members and their interests. Finally, the proposed rule will increase the maximum coverage limits for Customary Fire and Extend Coverage and Homeowner’s risk under s. Ins 4.10 (4) (b) and (d), Wis. Adm. Code. The current maximum coverage limits of $200,000 have not been revised since the late 1990’s and are no longer sufficient. The proposed rule will increase the coverage limits to $350,000. This change is necessary to ensure that WIP has the ability to provide insureds with the appropriate level of coverage for these risks.
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:
The office is unaware of any proposed or existing federal regulation that is intended to address the activities to be regulated by this rule.
7. Comparison of similar rules in adjacent states as found by OCI:
Illinois, Iowa, Michigan, and Minnesota all have residual property insurance programs similar to Wisconsin’s WIP, which are also referred to as FAIR Plans (Free Access to Insurance Requirements). All were created to offer a range of “basic property insurance” coverages for insureds that are denied coverage in the standard markets. In addition, all are generally required to offer coverages for fire dwelling, homeowners, and commercial property.
However, comparing specific coverages and limits offered by each Plan is difficult as a result of varying definitions and the fact that many coverages are not specifically identified within the governing provisions, but are rather sub-classes of a more comprehensive coverage (i.e. theft often falls within homeowners or fire dwelling). Based on reviewing additional resources, it appears that the Plans generally provide coverage for theft and burglary through the comprehensive coverages they offer. Also, it is not clear if any of the Plans are currently offering builders risk coverage, which is consistent with the changes being made by this proposed rule.
Illinois: 215 ILCS 5/522 to 5/530a sets forth the Illinois FAIR Plan. The Plan is governed by a committee of eleven members. Currently, the Plan offers maximum coverage limits of $750,000 for dwellings and $350,000 for the contents of a dwelling. Finally, the Plan provides theft coverage through its homeowners coverage.
Iowa: 191 IAC 20.41 to 20.60 sets forth the Iowa FAIR Plan. The plan is administered by a governing committee of seven members. Currently, the Plan provides maximum coverage limits of $250,000 for dwelling property and contents combined and $200,000 for homeowners.
Michigan: MCLS § 500.2901 to § 500.2954 sets forth the Michigan FAIR Plan. The Plan is governed by a board of 13 governors. Currently, the Plan offers coverages for fire dwelling and homeowners risks, however, neither the governing provisions nor additional resources specified the maximum coverage limits. Finally, the Plan provides theft coverage through its homeowners and dwelling fire coverages.
Minnesota: Minn. Stat. § 65A.31 to § 65A.42 sets forth the Minnesota Fair Plan, which is administered by a board of nine directors. Currently, the Plan offers maximum coverage limits of $500,000 on both fire dwelling and homeowners risks. Finally, theft coverage is included in the homeowners coverage.
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:
OCI reviewed practices in the standard market and consulted with WIP in determining the changes made by this proposed rule.
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 changes made by this proposed rule only apply to WIP, which is a not-for-profit, unincorporated mandatory risk-sharing facility that functions as a residual property insurer and does not qualify as a small business.
10. See the attached Private Sector Fiscal Analysis.
This rule will have no significant effect on the private sector regulated by OCI.
11. A description of the Effect on Small Business:
This rule will have no effect on small businesses.
12. Agency contact person:
Phone: (608) 267-9586
Address: 125 South Webster St – 2nd Floor, Madison WI 53703-3474
Mail: PO Box 7873, Madison, WI 53707-7873
13. Place where comments are to be submitted and deadline for submission:
Persons wishing to testify or provide oral or written comments regarding the proposed administrative rule may appear during the hearing.
Written comments can be mailed or hand-delivered to:
Timothy L. Cornelius
Legal Unit - OCI Rule Comment for Rule Ins 4.10
Office of the Commissioner of Insurance
125 South Webster St – 2nd Floor
Madison WI 53703-3474
Comments can be emailed to:
Timothy L. Cornelius