AB681: Bill Text

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.

Town mutuals

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 times.

Committees

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 directors.

Miscellaneous

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 Section 1. 600.03 (21) of the statutes is amended to read:

AB681,6,4 600.03 (21) "Form" means a policy, group certificate, or application prepared for general use and does not include one specially prepared for use in an individual case. See also "policy".

AB681, s. 2 Section 2. 601.31 (1) (k) (intro.) of the statutes is amended to read:

AB681,6,7 601.31 (1) (k) (intro.) For filing an annual statement , except as provided in s. 641.13:

AB681, s. 3 Section 3. 601.31 (1) (tc) of the statutes is created to read:

AB681,6,10 601.31 (1) (tc) For each annual listing by the commissioner for surplus lines insurance under s. 618.41 (6) (d), $500.

AB681, s. 4 Section 4. 601.41 (4) (a) of the statutes is renumbered 601.41 (4) (a) (intro.) and amended to read:

AB681,6,15 601.41 (4) (a) (intro.) The commissioner shall issue such prohibitory, mandatory, and other orders as are necessary to secure compliance with the law. An order requiring remedial measures or restitution may include any of the following:

AB681, s. 5 Section 5. 601.41 (4) (a) 1. of the statutes is created to read:

AB681,6,17 601.41 (4) (a) 1. Remedial measures or restitution under s. 628.347 (5).

AB681, s. 6 Section 6. 601.41 (4) (a) 2. of the statutes is created to read:

AB681,6,22 601.41 (4) (a) 2. Remedial measures or restitution to enforce s. 611.72 or ch. 617, including seizure or sequestering of voting securities of an insurer owned directly or indirectly by a person who has acquired or who is proposing to acquire voting securities in violation of s. 611.72 or ch. 617.

AB681, s. 7 Section 7. 601.465 (3) (intro.) of the statutes is amended to read:

AB681,7,2 601.465 (3) (intro.) Testimony, reports, records, communications, and information that are obtained by the office from, or provided by the office to, any of the following, under a pledge of confidentiality or for the purpose of assisting in the conduct of an investigation or examination:

AB681, s. 8 Section 8. 601.64 (1) of the statutes is amended to read:

AB681,7,10 601.64 (1) Injunctions and restraining orders. The commissioner may commence an action in circuit court in the name of the state to restrain by temporary or permanent injunction or by temporary restraining order any violation of chs. 600 to 655, s. 149.13 or 149.144, any rule promulgated under chs. 600 to 655 or any order issued under s. 601.41 (4). Except as provided in s. 641.20, the The commissioner need not show irreparable harm or lack of an adequate remedy at law in an action commenced under this subsection.

AB681, s. 9 Section 9. 609.98 (1) of the statutes is amended to read:

AB681,7,13 609.98 (1) Definition. In this section, "premiums" has the meaning given under s. 646.51 (3) (a) 1 (1c) (c).

AB681, s. 10 Section 10. 609.98 (4) (a) of the statutes is amended to read:

AB681,7,15 609.98 (4) (a) To pay an assessment under s. 646.51 (3) (a) or (b) (am).

AB681, s. 11 Section 11. 609.98 (4) (b) of the statutes is amended to read:

AB681,7,20 609.98 (4) (b) To the extent that the amount on deposit exceeds 1% of premiums written in this state by the health maintenance organization insurer in the preceding calendar year and the deposit is not necessary to pay an assessment under s. 646.51 (3) (a) or (b) (am).

AB681, s. 12 Section 12. 611.26 (4) of the statutes is renumbered 611.26 (4) (intro.) and amended to read:

AB681,8,6 611.26 (4) Other subsidiaries. (intro.) An insurance corporation may form or acquire other subsidiaries than those under subs. (1) to (3). The investment in such subsidiaries may be counted toward satisfaction of the compulsory surplus requirement of s. 623.11 and the security surplus standard of s. 623.12 to the extent that the investment is a part of the leeway investments of s. 620.22 (9) for the first $200,000,000 of assets or to the extent that the investment is within the limitations under s. 620.23 (2) (a) and (b) for other assets. The commissioner may limit investment in subsidiaries under this subsection by rule or order. Unless approved by the commissioner, an insurance corporation may not do any of the following:

AB681, s. 13 Section 13. 611.26 (4) (a) of the statutes is created to read:

AB681,8,9 611.26 (4) (a) Invest in a subsidiary more than 10 percent of its assets or 50 percent of its capital and surplus, whichever is less.

AB681, s. 14 Section 14. 611.26 (4) (b) of the statutes is created to read:

AB681,8,13 611.26 (4) (b) Invest in a subsidiary to the extent that the insurer's capital and surplus with regard to policyholders will not be reasonable in relation to the insurer's outstanding liabilities or adequate to meet the insurer's financial needs.

AB681, s. 15 Section 15. 611.56 (1) of the statutes is amended to read:

AB681,8,23 611.56 (1) Appointment. If the articles or bylaws of a corporation so provide, the board by resolution adopted by a majority of the full board may designate one or more committees, each consisting of at least 3 or more directors serving at the pleasure of the board. The board may designate one or more directors as alternate members of any committee to substitute for any absent member at any meeting of the committee. Any committee under this section may include one or more nonvoting members who are not directors. The designation of a committee and delegation of authority to it shall not relieve the board or any director of any responsibility imposed by law.

AB681, s. 16 Section 16. 611.56 (2) of the statutes is amended to read:

AB681,9,7 611.56 (2) Delegation; major committees. When the board is not in session, a committee satisfying all of the requirements for the composition of a board under s. 611.51 (2) to (4) may exercise any of the powers of the board in the management of the business and affairs of the corporation, including action under ss. 611.60 and 611.61, to the extent authorized in the resolution or in the articles or bylaws; except that any such committee may be composed of include 7 or more directors if the corporation has 9 or more directors.

AB681, s. 17 Section 17. 612.13 (1m) of the statutes is created to read:

AB681,9,10 612.13 (1m) Inside directors. (a) Beginning 2 years after the effective date of this paragraph .... [revisor inserts date], all of the following apply:

AB681,9,12 1. If a town mutual has fewer than 9 directors, no more than one director may be an employee or representative of the town mutual.

AB681,9,14 2. Employees and representatives of a town mutual may not constitute a majority of its board.

AB681,9,17 (b) Notwithstanding par. (a), the commissioner may allow a town mutual an extension of up to one year to come into compliance with the requirements under par. (a).

AB681, s. 18 Section 18. 612.22 (title) of the statutes is amended to read:

AB681,9,20 612.22 (title) Merger of town mutuals into and mutual insurance corporations.

AB681, s. 19 Section 19. 612.22 (1) of the statutes is amended to read:

AB681,9,24 612.22 (1) Conditions for merger. One or more town mutuals may merge with a single domestic mutual under ch. 611. The If the domestic mutual is nonassessable, the surviving corporation shall be a mutual under ch. 611. If the domestic mutual is assessable, the surviving corporation may be either a mutual under ch. 611 or a town mutual under this chapter.

AB681, s. 20 Section 20. 612.22 (3) of the statutes is renumbered 612.22 (3) (a) and amended to read:

AB681,10,13 612.22 (3) (a) Each of the participating corporations shall file with the commissioner for approval a copy of the resolution and any explanatory material proposed to be issued to the members, together with so much of the information under s. 611.13 (2) or 612.02 (4), whichever is appropriate, for the surviving or new corporation as the commissioner reasonably requires. The commissioner shall approve the plan unless he or she finds, after a hearing, that it would be contrary to the law, or that the surviving or new corporation would not satisfy the requirements for a certificate of authority under s. 611.20 or 612.02 (6), whichever is appropriate, or that the plan would be contrary to the interest of insureds or of the public.

AB681, s. 21 Section 21. 612.22 (3) (b) of the statutes is created to read:

AB681,10,18 612.22 (3) (b) If the surviving corporation will be a town mutual, the plan filed with the commissioner under par. (a) shall include a time schedule for bringing the surviving corporation into compliance with this chapter. The commissioner may approve a reasonable time schedule that does not exceed 3 years.

AB681, s. 22 Section 22. 612.22 (4) of the statutes is amended to read:

AB681,10,23 612.22 (4) Approval by members of the town mutuals. After being approved by the commissioner under sub. (3), the plan shall be submitted to the members of the participating town mutuals for their approval. The members of each town participating mutual shall vote separately.

AB681, s. 23 Section 23. 612.22 (6) of the statutes is amended to read:

AB681,11,5 612.22 (6) Reports to commissioner. Each participating town mutual shall file with the commissioner a copy of the resolution adopted under sub. (4), stating the number of members entitled to vote, the number of members voting, and the number of votes cast in favor of the plan, stating separately in each case the mail votes and the votes cast in person.

AB681, s. 24 Section 24. 617.225 (1) of the statutes is amended to read:

AB681,11,11 617.225 (1) Except as provided under sub. (5), a A domestic insurer may not pay an extraordinary dividend to its shareholders and an affiliate of the insurer may not accept an extraordinary dividend unless the insurer reports the extraordinary dividend to the commissioner at least 30 days before payment and the commissioner does not disapprove the extraordinary dividend within that period.

AB681, s. 25 Section 25. 617.225 (5) of the statutes is repealed.

AB681, s. 26 Section 26. 628.347 of the statutes is created to read:

AB681,11,15 628.347 Suitability of annuity sales to senior consumers. (1) Definitions. In this section:

AB681,11,17 (a) "Annuity" means a fixed or variable annuity that is individually solicited, whether the product is classified as individual or group.

AB681,11,20 (b) "Recommendation" means advice provided by an insurance intermediary, or an insurer if no intermediary is involved, to an individual senior consumer that results in the purchase or exchange of an annuity in accordance with that advice.

AB681,11,25 (c) "Senior consumer" means a person who is 65 years of age or older. The term includes any joint owner of an annuity who is less than 65 years of age if at least one joint owner is 65 years of age or older, and any prospective joint purchaser of an annuity who is less than 65 years of age if at least one prospective joint purchaser is 65 years of age or older.

AB681,12,8 (2) Duties of insurers and insurance intermediaries with regard to recommendations. (a) Except as provided in par. (c), an insurance intermediary, or insurer if no intermediary is involved, may not recommend to a senior consumer the purchase or exchange of an annuity if the recommendation results in an insurance transaction or series of insurance transactions unless the intermediary or insurer has reasonable grounds to believe that the recommendation is suitable for the senior consumer on the basis of facts disclosed by the senior consumer as to his or her investments, other insurance products, and financial situation and needs.

AB681,12,11 (b) Before making a recommendation described in par. (a), an insurance intermediary, or insurer if no intermediary is involved, shall make reasonable efforts to obtain information concerning all of the following:

AB681,12,12 1. The senior consumer's financial status.

AB681,12,13 2. The senior consumer's tax status.

AB681,12,14 3. The senior consumer's investment objectives.

AB681,12,16 4. Any other information that is reasonably appropriate for determining the suitability of a recommendation to the senior consumer.

AB681,12,19 (c) An insurance intermediary, or insurer if no intermediary is involved, has no obligation under par. (a) to a senior consumer related to a recommendation if the senior consumer does any of the following:

AB681,12,21 1. Refuses to provide relevant information requested by the insurer or insurance intermediary.

AB681,12,22 2. Fails to provide complete or accurate information.

AB681,12,24 3. Decides to enter into an insurance transaction that is not based on a recommendation of the insurer or insurance intermediary.