Analysis by the Legislative Reference Bureau
Surplus lines insurance
This bill makes a few changes related to surplus lines insurance, which is
defined in the bill as insurance that is permitted to be placed through an agent or

broker with an insurer that is not authorized to do an insurance business in this state
and that covers an insured for which this state is the home state, which is defined
in the bill as: 1) the state in which the insured maintains its principal place of
business; 2) the insured's principal residence if the insured is an individual; or 3) if
100 percent of the insured risk is outside this state, the state to which the greatest
percentage of the insured's taxable premium for the insurance is allocated.
Current law contains some limitations on and requirements for the placement
of insurance with, and the direct procurement of insurance from, an insurer that is
not authorized to do an insurance business in this state. The bill specifies that
certain of these requirements do not apply if this state is not the insured's home state
and the placement complies with the laws of the insured's home state. The bill also
specifies that an intermediary may not place surplus lines insurance with an insurer
that is not authorized to do an insurance business in this state unless certain criteria
are satisfied. If the insurer is domiciled in another United States jurisdiction, the
insurer must be authorized to write the type of insurance in its domiciliary
jurisdiction that the intermediary is placing, the insurer must have a specified level
of capital and surplus or the commissioner of insurance (commissioner) must find the
insurer's capital and surplus acceptable, and the insurer must provide to the
commissioner a certified copy of its current annual statement that is filed and
approved by the regulatory authority in the insurer's domicile. If the insurer is
domiciled outside the United States, the insurer must be on the list maintained by
the international insurers department of the National Association of Insurance
Commissioners and must meet any additional requirements regarding the use of the
list established by the commissioner by rule.
Under current law, the policyholder of surplus lines insurance generally must
pay a 3 percent tax on gross premium. If a policy covers risks in more than one state
including this state, the tax payable to this state is computed on the premium
allocated to this state for the portion of the risk located in this state. Under the bill,
that computation applies only for policies issued or renewed before July 21, 2011.
For policies issued or renewed on or after that date, the tax is payable to this state
only if this state is the home state of the insured, and it is computed on the entire
premium, including premium attributable to risks outside of this state.
The bill specifies that the licensing requirements for intermediaries in this
state do not apply to a person who solely procures insurance that may be placed
directly or through a broker with an insurer that is not authorized to do an insurance
business in this state and that is not surplus lines insurance; that the requirements
related to filing insurance forms with the commissioner for approval do not apply to
a surplus lines insurance form, except for a form for rustproofing warranty
insurance; and that the provision relating to insurance policies containing provisions
for independent appraisal and compulsory arbitration, subject to the requirements
for form filing and approval, does not apply to surplus lines insurance.
Auto insurance
Under current law, the auto insurance provisions relating to required coverage
and minimum limits apply to all liability insurance policies that insure with respect
to any owned motor vehicle registered or principally garaged in this state. The bill

eliminates the condition that the requirements apply only if an owned motor vehicle
is insured so that, unless a specific exemption applies, the coverage and minimum
limit requirements apply to any policy that insures with respect to any motor vehicle.
The bill makes a few modifications to the auto insurance provisions that, under
Act 14, go into effect on November 1, 2011. Act 14 provided a definition for a
"commercial liability policy" as a policy that provides coverage for the insured's
general liability arising out of business or commercial activities and that includes as
one component coverage for the insured's liability arising out of the ownership,
maintenance, or use of a motor vehicle. Under Act 14, commercial liability policies
are not subject to the requirement for motor vehicle insurance policies that they must
include uninsured motorist coverage and medical payments coverage, unless the
insured rejects medical payments coverage, or the requirement that an insurer must
notify the insured of the availability of underinsured motorist coverage. The bill does
all of the following:
1. Specifies that a commercial liability policy is not subject to these
requirements if the coverage provided under the policy for the insured's liability
arising out of the maintenance or use of a motor vehicle is limited to nonowned motor
vehicles.
2. Provides that if a policy that is exempt from the requirements does, however,
provide uninsured or underinsured motorist coverage or medical payments
coverage, that coverage must have at least the limits that are required under the
statutes for those coverages. (For uninsured motorist coverage, the minimum limits
are $25,000 per person and $50,000 per accident; for underinsured motorist
coverage, the minimum limits are $50,000 per person and $100,000 per accident; and
for medical payments coverage, the minimum limit is $1,000 per person.)
3. Excludes commercial automobile liability policies from the definition of
commercial liability policies so that commercial automobile liability policies are
subject to the same requirements as motor vehicle insurance policies and defines a
"commercial automobile liability policy" as a policy that is intended principally to
provide primary coverage for the insured's liability arising out of the ownership,
maintenance, or use of a motor vehicle in the insured's business or other commercial
activities.
4. Clarifies that only one named insured is required to reject medical payments
coverage for the rejection to be effective.
Insurance security fund
Under current law, the state maintains an insurance security fund to protect
insured parties from excessive delay and loss in the event an insurer is liquidated
and to provide for the continuation of protection under certain policies and contracts
in the event of a liquidation of an insurer. Insurers, with some exceptions, are
required to contribute moneys to the insurance security fund. Current law also
specifies that, with some exceptions, the maximum obligation of the insurance
security fund on any single risk, loss, or life is $300,000.
In addition to making other changes to the insurance security fund, this bill
specifies that retained asset accounts are covered by the insurance security fund. A
retained asset account is any mechanism in which the settlement of proceeds payable

under a life insurance policy is accomplished by the insurer or an entity acting on
behalf of the insurer depositing the proceeds into an account with check or draft
writing privileges, where those proceeds are retained by the insurer under a written
supplementary contract not involving annuity benefits. The bill specifies that a
retained asset account is a type of supplementary contract for which an insured may
make a claim for payment against the fund. The bill also specifies that retained asset
accounts are eligible for continuation protections as are certain other policies and
contracts. The bill defines, for the purposes of the maximum fund obligation,
"disability insurance" as comprehensive health insurance and major medical health
insurance. The bill clarifies that the maximum obligation applies regardless of the
number of policies or contracts. The bill also sets the maximum aggregate liability
of the fund for a single risk, loss, or life with respect to benefits for property
insurance, liability insurance, and disability insurance at $500,000, while the
maximum for other insurance policy or contract types remains at $300,000.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB604, s. 1 1Section 1. Subchapter III (title) of chapter 618 [precedes 618.39] of the
2statutes is repealed.
AB604, s. 2 3Section 2. Subchapter III (title) of chapter 618 [precedes 618.40] of the
4statutes is created to read:
AB604,4,55 chapter 618
AB604,4,66 Subchapter III
AB604,4,77 Permissible business by
AB604,4,88 unauthorized insurers
AB604, s. 3 9Section 3. 618.40 of the statutes is created to read:
AB604,4,10 10618.40 Definitions. In this subchapter, unless the context requires otherwise:
AB604,4,12 11(1) "Affiliated group" means all persons that control, are controlled by, or are
12under common control with, an insured.
AB604,5,2
1(2) "Authorized insurer" means an insurer that is licensed, or authorized, to
2transact the business of insurance under the law of the home state.
AB604,5,4 3(3) "Control" means, with respect to a person having control over another
4person, that the person does any of the following:
AB604,5,75 (a) Directly or indirectly, or acting through one or more other persons, owns,
6controls, or has the power to vote 25 percent or more of any class of voting securities
7of a person.
AB604,5,98 (b) Controls in any manner the election of a majority of the directors or trustees
9of a person.
AB604,5,11 10(4) (a) Except as provided in par. (b), "home state" means, with respect to an
11insured, one of the following:
AB604,5,1312 1. The state in which the insured maintains its principal place of business or,
13in the case of an insured who is an individual, the individual's principal residence.
AB604,5,1614 2. If 100 percent of the insured risk is located outside of the state referred to
15in subd. 1., the state to which the greatest percentage of the insured's taxable
16premium for that insurance contract is allocated.
AB604,5,2017 (b) If more than one insured from an affiliated group are named insureds on
18a single surplus lines insurance contract, "home state" means the state, as
19determined under par. (a), of the member of the affiliated group that has the largest
20percentage of premium attributed to it under the insurance contract.
AB604,5,25 21(5) "Premium tax" means, with respect to unauthorized insurance, any tax, fee,
22assessment, or other charge imposed by this state directly or indirectly based on any
23payment made as consideration for an insurance contract for such insurance,
24including premium deposits, assessments, registration fees, and any other
25compensation given in consideration for a contract of insurance.
AB604,6,4
1(6) "Principal place of business" means, with respect to determining the home
2state of an insured, the state where the insured maintains its headquarters and
3where the insured's high-level officers direct, control, and coordinate the business
4activities of the insured.
AB604,6,7 5(7) "Principal residence" means, with respect to determining the home state of
6an insured who is an individual, the state where the individual resides for the
7greatest number of days during a calendar year.
AB604,6,10 8(8) "State" includes any state of the United States, the District of Columbia,
9the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, the Virgin
10Islands, and American Samoa.
AB604,6,13 11(9) "Surplus lines broker" means a person that is licensed in a state to sell,
12solicit, or negotiate insurance on properties, risks, or exposures located or to be
13performed in that state with unauthorized insurers.
AB604,6,15 14(10) "Surplus lines insurance" means any insurance to which all of the
15following apply:
AB604,6,1616 (a) This state is the home state of the insured.
AB604,6,1917 (b) The insurance is permitted under this subchapter to be placed through a
18surplus lines agent or broker with an unauthorized insurer eligible to accept the
19insurance.
AB604,6,22 20(11) "Unauthorized insurance" means any insurance permitted in a state to be
21placed directly or through a surplus lines broker with an unauthorized insurer
22eligible to accept such insurance.
AB604, s. 4 23Section 4. 618.41 (6m) of the statutes is amended to read:
AB604,7,224 618.41 (6m) Rustproofing warranties insurance. An insurer issuing a policy
25of insurance under this section to cover a warranty, as defined in s. 100.205 (1) (g),

1shall comply with s. 632.18 and the policy shall be on a form approved by the
2commissioner under s. 631.20.
AB604, s. 5 3Section 5. 618.41 (8) (a) (intro.) of the statutes is amended to read:
AB604,7,84 618.41 (8) (a) Responsibility. (intro.) An agent or broker, or any other person
5who offers liability insurance coverage under a group policy,
may not place insurance
6under this section with, or and a person who offers liability insurance coverage under
7a group policy may not
solicit the purchase of coverage under a group policy issued
8by, an unauthorized insurer if all of the following exist:
AB604, s. 6 9Section 6. 618.41 (8) (c) of the statutes is amended to read:
AB604,7,1310 618.41 (8) (c) Financially sound. To be financially sound for purposes of par.
11(a) 1., an insurer must be able to satisfy standards comparable to those applied under
12the laws of this state to authorized insurers, unless this state is the insured's home
13state, in which case s. 618.416 applies
.
AB604, s. 7 14Section 7. 618.41 (9) (a) of the statutes is amended to read:
AB604,7,2515 618.41 (9) (a) Required information. Every new or renewal insurance policy
16procured and delivered under this section shall bear the name and address of the
17insurance agent or broker who procured it and, except for ocean marine insurance,
18shall have stamped or affixed upon it the following: "This insurance contract is with
19an insurer which has not obtained a certificate of authority to transact a regular
20insurance business in the state of Wisconsin, and is issued and delivered as a surplus
21line coverage pursuant to s. 618.41 of the Wisconsin Statutes. Section 618.43 (1),
22Wisconsin Statutes, requires payment by the policyholder of 3 percent tax on gross
23premium." Every ocean marine insurance policy shall have stamped or affixed upon
24it the above statement except that the tax shall be one-half of one percent on gross
25premium.
AB604, s. 8
1Section 8. 618.41 (12) of the statutes is created to read:
AB604,8,52 618.41 (12) Application when this state is not the insured's home state. The
3placement of insurance under this section is not subject to subs. (4), (7m), (8), (9), or
4(10) if this state is not the insured's home state and the placement complies with the
5laws of the insured's home state.
AB604, s. 9 6Section 9. 618.416 of the statutes is created to read:
AB604,8,11 7618.416 Qualification for placement of surplus lines insurance with an
8unauthorized insurer.
An intermediary may not place surplus lines insurance
9under s. 618.41 with an unauthorized insurer if this state is the home state of the
10proposed insured, unless at the time of placement all of the following apply to the
11unauthorized insurer:
AB604,8,13 12(1) If the unauthorized insurer is domiciled in a United States jurisdiction, the
13insurer satisfies all of the following:
AB604,8,1514 (a) In its domiciliary jurisdiction, the unauthorized insurer is authorized to
15write the type of insurance to be placed with the insurer.
AB604,9,216 (b) Either the unauthorized insurer has capital and surplus or its equivalent
17under the laws of its domiciliary jurisdiction that equals the greater of either the
18minimum capital and surplus requirements under the laws of this state or
19$15,000,000 or the commissioner affirmatively finds that the unauthorized insurer's
20capital and surplus are acceptable. The commissioner's finding shall be based on
21factors that include quality of management, capital and surplus of any parent
22company, company underwriting profit and investment income trends, market
23availability, and company record and reputation within the industry. In no event
24may the commissioner find that the unauthorized insurer's capital and surplus are

1acceptable if the unauthorized insurer's capital and surplus are less than
2$4,500,000.
AB604,9,73 (c) The unauthorized insurer provides to the commissioner, no more than 6
4months after the close of the period reported on, a certified copy of its current annual
5statement that is filed and approved by the regulatory authority in the unauthorized
6insurer's domicile and certified by an accounting or auditing firm licensed in the
7jurisdiction of the unauthorized insurer's domicile.
AB604,9,12 8(2) If the unauthorized insurer is an alien insurer, the insurer is listed on the
9quarterly listing of alien insurers maintained by the international insurers
10department of the National Association of Insurance Commissioners and meets
11additional requirements regarding the use of the list established by rule of the
12commissioner.
AB604, s. 10 13Section 10. 618.43 (1) (a) (intro.) of the statutes is amended to read:
AB604,9,1714 618.43 (1) (a) (intro.) Except as provided in Subject to par. (b) (bc), insurers,
15agents, brokers, and policyholders are liable, as provided in sub. (2), for a premium
16tax of 3% 3 percent of gross premiums charged for insurance, excluding annuities,
17if any of the following are is satisfied:
AB604, s. 11 18Section 11. 618.43 (1) (a) 3. of the statutes is amended to read:
AB604,9,2119 618.43 (1) (a) 3. The insurance is transacted by an unauthorized insurer for a
20risk purchasing group for coverage of risks which reside or are otherwise located in
21this state
.
AB604, s. 12 22Section 12. 618.43 (1) (b) of the statutes is repealed.
AB604, s. 13 23Section 13. 618.43 (1) (bc) of the statutes is created to read:
AB604,9,2524 618.43 (1) (bc) Notwithstanding any other provision of this section, with
25respect to premiums charged on policies issued or renewed on or after July 21, 2011,

1for insurance to which par. (a) applies, the tax under par. (a) is required only if the
2home state of the insured is this state, and it shall be levied on the entire gross
3premium charged, including premium attributable to those portions of the risk
4located outside of this state.
AB604, s. 14 5Section 14. 618.43 (1) (d) of the statutes is amended to read:
AB604,10,96 618.43 (1) (d) Any insurance business transacted in violation of the law is
7subject to a premium tax of 5% 5 percent of gross premiums charged for the
8insurance, except that for ocean marine insurance the tax is 2% of gross premiums
9charged for the insurance
.
AB604, s. 15 10Section 15. 618.43 (6) of the statutes is amended to read:
AB604,10,1711 618.43 (6) Allocation of tax. If With respect to gross premiums charged on
12policies issued or renewed before July 21, 2011, if
a policy covers risks that are only
13partially located in this state, the premium shall be reasonably allocated among the
14states on the basis of risk locations in computing the tax, except that all premiums
15received in this state or charged on policies written or negotiated in this state shall
16be taxable in full under this section, with a credit for any tax actually paid in another
17state to the extent of a reasonable allocation on the basis of risk locations.
AB604, s. 16 18Section 16. 628.03 (1) of the statutes is amended to read:
AB604,10,2519 628.03 (1) General. No natural person may perform, offer to perform, or
20advertise any service as an intermediary in this state, unless the natural person
21obtains a license under s. 628.04 or 628.09, and no person may utilize the services
22of another as an intermediary if the person knows or should know that the other does
23not have a license as required by law. The licensing requirements of this subsection
24do not apply to a person who solely procures unauthorized insurance, as defined in
25s. 618.40 (11), that is not surplus lines insurance, as defined in s. 618.40 (10).
AB604, s. 17
1Section 17. 628.05 (1) of the statutes is amended to read:
AB604,11,52 628.05 (1) General exemption. Except as otherwise provided in sub. (2), or by
3rule promulgated by the commissioner, persons engaged in soliciting insurance
4exclusively for town mutuals are not subject to the licensing requirements of s.
5628.03 (1).
AB604, s. 18 6Section 18. 628.34 (1) (a) of the statutes is amended to read:
AB604,11,197 628.34 (1) (a) Conduct forbidden. No person who is or should be licensed under
8chs. 600 to 646, no employee or agent of any such person, no person whose primary
9interest is as a competitor of a person licensed under chs. 600 to 646, and no person
10on behalf of any of the foregoing persons may make or cause to be made any
11communication relating to an insurance contract, the insurance business, any
12insurer, or any intermediary which that contains false or misleading information,
13including information that is misleading because of incompleteness. Filing a report
14and, with intent to deceive a person examining it, making a false entry in a record
15or willfully refraining from making a proper entry, are "communications" within the
16meaning of this paragraph. No intermediary or insurer may use any business name,
17slogan, emblem, or related device that is misleading or likely to cause the
18intermediary or insurer to be mistaken for another insurer or intermediary already
19in business. No intermediary may provide a misleading certificate of insurance.
AB604, s. 19 20Section 19. 631.01 (4m) of the statutes is amended to read:
AB604,11,2421 631.01 (4m) Rustproofing warranties insurance. An insurer issuing a policy
22of insurance to cover a warranty, as defined in s. 100.205 (1) (g), shall comply with
23s. 632.18 and the policy shall be on a form approved by the commissioner under s.
24631.20
.
AB604, s. 20 25Section 20. 631.20 (1) (a) of the statutes is amended to read:
AB604,12,7
1631.20 (1) (a) No form subject to s. 631.01 (1), except as exempted under par.
2(c), sub. (1g), or s. 631.01 (2) to, (3), (4), or (5) or by rule under par. (b), may be used
3unless it has been filed with and approved by the commissioner and unless the
4insurer certifies that the form complies with chs. 600 to 655 and rules promulgated
5under chs. 600 to 655. It is deemed approved if it is not disapproved within 30 days
6after filing, or within a 30-day extension of that period ordered by the commissioner
7prior to the expiration of the first 30 days.
AB604, s. 21 8Section 21. 631.20 (1) (c) 9. of the statutes is amended to read:
AB604,12,109 631.20 (1) (c) 9. A form subject to s. 618.41 (6m) for a policy of insurance to cover
10a warranty, as defined in s. 100.205 (1) (g)
.
AB604, s. 22 11Section 22. 631.20 (1m) (a) (intro.) of the statutes is amended to read:
AB604,12,1512 631.20 (1m) (a) (intro.) Except as exempted under sub. (1g) or s. 631.01 (2) to,
13(3), (4), or
(5) or by a rule promulgated by the commissioner, an insurer may not, on
14or after August 1, 2008, use a form that is exempt from sub. (1) (a) under sub. (1) (c)
15unless the insurer does all of the following:
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