AB420: Bill Text

October 19, 2015 - Introduced by Representative Petersen, cosponsored by Senator Lasee. Referred to Committee on Insurance.

AB420,2,6 An Act to repeal 601.422, 601.425, 601.428, 612.14 (1) to (12), 612.31 (5), 612.31 (6), 612.32 (4), 612.53 (1) (title), 612.53 (2), 612.71, 623.06 (1c), 628.81, 635.13 (title), 635.13 (2) and 646.51 (3) (am) 1.; to renumber 612.53 (1) and 635.13 (1); to renumber and amend 612.14 (intro.), 620.04 (1), 623.06 (1f), 623.06 (8) and 632.43 (6m) (a) 3.; to consolidate, renumber and amend 646.51 (3) (am) (intro.) and 2.; to amend 600.01 (1) (b) 10. b., 605.21 (2), 611.07 (4), 611.56 (5), 612.02 (2) (a), 612.13 (3), 612.13 (4), 612.31 (4) (m), 612.32 (1), 612.32 (2) (a), 612.33 (1), 612.33 (2) (b), 623.06 (2) (intro.), 628.07, 628.10 (2) (a), 628.10 (2) (am), 628.347 (1) (a), 628.347 (4) (c), 628.347 (4m) (b) 3. c., 631.95 (3) (a), 632.43 (6m) (e) 3. f., 632.43 (6m) (e) 3. g., 632.62 (2), 632.62 (3), 632.62 (4) (a), 632.62 (4) (b), 632.89 (3c) (b), 646.51 (3) (b), 646.51 (4) (a), 646.51 (9) (a), 646.51 (9) (b), 655.27 (3) (b) 1., 655.27 (3) (b) 2., 655.27 (3) (b) 2m., 655.27 (3) (bg) 1., 655.27 (3) (bg) 2., 655.27 (3) (br) (intro.), 655.27 (3) (d), 655.27 (3) (e) and 655.61 (1); to repeal and recreate 623.06 (1) (f); and to create 227.01 (13) (pm), 601.465 (1m) (c) 8., 601.465 (1m) (c) 9., 601.465 (3) (d), 620.04 (1) (b), 623.06 (1), 623.06 (1f) (b), 623.06 (1m) (intro.), 623.06 (1r), 623.06 (8m), 623.06 (9), 623.06 (10), 623.06 (11), 623.06 (12), 623.06 (13) (b), 632.43 (6m) (a) 3. b., 632.43 (6m) (a) 4m., 645.675, 646.51 (3) (ar), 646.51 (10), 655.27 (3) (bt) and 655.61 (3) of the statutes; relating to: various miscellaneous changes to the insurance statutes and granting rule-making authority.

Analysis by the Legislative Reference Bureau

This bill makes a number of miscellaneous changes to the insurance statutes, including the following:

1. Under current law, the reserves that life insurance policies, annuities, and pure endowment contracts must maintain are calculated according to a formula set out in the statutes. Under the bill, policies and contracts must use a principle-based valuation for reserves on and after the operative date of the valuation manual. The "valuation manual" is defined in the bill as the manual of valuation instructions adopted by the National Association of Insurance Commissioners (NAIC). The "operative date of the valuation manual" is defined in the bill as the January 1 of the first calendar year beginning after the first July 1 as of which three things have occurred: 1) the valuation manual has been adopted by the NAIC by an affirmative vote of the greater of at least 42 members or three-fourths of the members voting; 2) the standard valuation law has been enacted by states representing more than 75 percent of the direct premiums written as reported in the 2008 annual statements for certain types of insurance; and 3) the standard valuation law has been enacted by at least 42 of 55 specified jurisdictions. "Principle-based valuation" is defined in the bill as a reserve valuation that uses one or more methods, or one or more assumptions, determined by the insurer and that is required to comply with detailed specifications and processes outlined in the bill. The bill also describes the documents, materials, and other information related to the requirements for principle-based valuation that are designated as confidential and specifies the confidentiality requirements that apply with respect to those documents, materials, and other information.

2. Under current law, health care providers that are subject to the health care liability provisions of the statutes pay assessments for the injured patients and families compensation fund, which pays any portion of a medical malpractice claim that exceeds the policy limits of the health care liability insurance carried by those health care providers. The assessments are set by the commissioner of insurance (commissioner) by rule, after approval by a supervisory board of governors (board). Also under current law, health care providers that are subject to the health care liability provisions of the statutes pay assessments for the mediation fund, which pays the costs of the system for mediating medical malpractice claims against health care providers subject to the health care liability provisions. The assessments are set by the board by rule.

Under the bill, the assessments paid by health care providers for the injured patients and families compensation fund continue to be set by the commissioner after approval by the board within the same parameters as under current law, but the assessments do not have to be set by rule; the assessments paid by health care providers for the mediation fund continue to be set by the board, but the assessments do not have to be set by rule; and, upon the request of the commissioner, the Joint Committee on Finance may modify the assessments.

3. Current law authorizes the commissioner to waive an examination requirement for a nonresident applicant for an intermediary's license if the jurisdiction of the applicant's residence has applicant requirements that are substantially as rigorous as those in this state. The bill requires the commissioner to waive an examination requirement for a nonresident applicant if the applicant's home state has issued the applicant an intermediary's license for which the qualifications are equivalent to those in this state and the license is in good standing.

4. The bill expands the ways in which the commissioner may notify an intermediary or navigator of the dates by which certain actions must be taken before the intermediary's or navigator's license is revoked for nonpayment of fees or failure to comply with education or training requirements by requiring notification generally. Current law requires the commissioner to send the notice by first class mail to the address on file.

5. The bill removes requirements for insurers to file a number of reports with the Office of the Commissioner of Insurance (OCI), including a report with information about the percentages and kinds of commissions and fixed salaries paid to agents and brokers in this state, an annual report related to premiums and claims for commercial liability insurance, an annual report related to premiums and claims for product liability insurance, and an annual report related to the number of rescissions initiated or completed with respect to individual health insurance policies.

6. Current law requires a small employer insurer to maintain detailed records relating to its rating and renewal underwriting methods and practices and to make them available to the commissioner, as well as filing an annual actuarial opinion, based on an examination of those records, certifying that the insurer's methods and practices are in compliance with state law and based on generally accepted and sound actuarial principles. The bill removes the requirement for the annual actuarial opinion.

7. The bill designates information to or from the International Association of Insurance Supervisors and its employees or agents as information that OCI may refuse to disclose.

8. The bill shortens the period for paying premiums for coverage under the local government property insurance fund from 60 days to 30 days after the effective date of coverage.

9. The bill authorizes an insurance stock corporation to take action that is required or permitted to be taken at a meeting by the written consent of board members instead of at a meeting.

10. The bill gives the board of directors of an insurer doing a participating life insurance business, in which life insurance policy holders participate in company profits by receiving dividends, more discretion to determine its surplus and the dividend to be distributed to its participating policy holders.

11. The bill subjects insurers that surrender their license or certificate of authority to assessments authorized by the board of directors of the insurance security fund and adjusts the formula for calculating assessments levied against an insurer. Under current law, the board of directors of the insurance security fund authorize assessments of insurers that have been ordered liquidated. Assessments authorized prior to April 30, 2004, are calculated as a percentage of premiums written in Wisconsin during the year preceding the year of entry of the order of liquidation. Assessments authorized after April 30, 2004, are calculated as a percentage of premiums written in Wisconsin during the year preceding the year in which the assessment is authorized. Under the bill, assessments are calculated as a percentage of premiums written in Wisconsin in the year preceding the year in which the board authorizes the assessment. Current law also specifies that assessments with respect to insurers providing annuities contracts and life and health insurance policies are calculated as the average annual premiums received in Wisconsin over the three years preceding the year of entry of the order of liquidation. Under the bill, for insurers providing health insurance policies, assessments authorized prior to the passage of the bill use the same formula; assessments authorized after passage of the bill are calculated as a percentage of the premiums written in Wisconsin by the insurer for the year preceding the year in which the board authorized the assessment.

12. The bill exempts care management organizations that administer the family care benefit and that offer only mental health or alcohol and other drug abuse treatment services from the application of the insurance statutes. Current law exempts care management organizations that administer family care from the application of the insurance statutes unless the care management organization also offers hospital, physician, or other acute care services.

13. The bill makes various changes to the laws governing town mutuals, including allowing an entire board to serve as the adjustment committee to adjust or supervise the adjustment of losses if no adjustment committee is appointed; allowing a town mutual to insure real property and contents in an immediately adjoining county owned by a member who has real property and contents insured by that town mutual, and allowing a town mutual to provide coverage for livestock and farm products while temporarily located outside the town mutual's territory.

14. The bill specifies certain rights that are preserved under a qualified financial contract with an insurer that is subject to a rehabilitation or liquidation proceeding. The bill specifies rights and obligations with respect to a party to a netting agreement or a qualified financial contract with an insurer that is subject to a rehabilitation or liquidation, including requirements on the receiver in the proceeding.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB420,1 Section 1. 227.01 (13) (pm) of the statutes is created to read:

AB420,5,4 227.01 (13) (pm) Relates to setting fees under s. 655.27 (3) for the injured patients and families compensation fund or setting fees under s. 655.61 for the mediation fund.

AB420,2 Section 2. 600.01 (1) (b) 10. b. of the statutes is amended to read:

AB420,5,9 600.01 (1) (b) 10. b. The exemption under subd. 10. a. does not apply if the services offered by the care management organization include hospital, physician or other acute health care services other than mental health and alcohol and other drug abuse treatment services.

AB420,3 Section 3. 601.422 of the statutes is repealed.

AB420,4 Section 4. 601.425 of the statutes is repealed.

AB420,5 Section 5. 601.428 of the statutes is repealed.

AB420,6 Section 6. 601.465 (1m) (c) 8. of the statutes is created to read:

AB420,5,14 601.465 (1m) (c) 8. The International Association of Insurance Supervisors.

AB420,7 Section 7. 601.465 (1m) (c) 9. of the statutes is created to read:

AB420,5,17 601.465 (1m) (c) 9. An agent or employee of the International Association of Insurance Supervisors.

AB420,8 Section 8. 601.465 (3) (d) of the statutes is created to read:

AB420,5,21 601.465 (3) (d) Any information defined as confidential information under s. 623.06 (12) (am), which is subject only to the confidentiality provisions in s. 623.06 (12).

AB420,9 Section 9. 605.21 (2) of the statutes is amended to read:

AB420,6,11 605.21 (2) Premium payment. Upon receipt of certification of premium due, the premium shall be paid into the state treasury for the benefit of the property fund, within 60 30 days after the date of certification or the effective date of the policy, whichever is the later. Premiums for property insured effective at a later date shall be paid within 60 30 days after the effective date of each addition. The amount of a premium in default shall be a special charge against the local governing unit, and be included in the next certification of state taxes and charged and collected as other special charges are collected, with interest from the due date at a rate set by the commissioner by rule or, in the absence of a rule, at twice the most common prime rate charged by major banks in this state.

AB420,10 Section 10. 611.07 (4) of the statutes is amended to read:

AB420,6,19 611.07 (4) Waiver of notice and informal action by shareholders, policyholders or directors. Sections 180.0704, 180.0706, 180.0821 , and 180.0823 apply to stock corporations and ss. 181.0704, 181.0706, 181.0821, and 181.0823 apply to mutuals. Section 180.0821 also applies to a committee of the board of a stock corporation and s. 181.0821 also applies to a committee of the board of a mutual, except that, in both cases, references to "board" shall be read as "committee" and "directors" shall mean members of the board appointed to serve on the committee.

AB420,11 Section 11. 611.56 (5) of the statutes is amended to read:

AB420,7,5 611.56 (5) Quorum Meetings, quorum, and voting. Section Sections 180.0820, 180.0821, and 180.0824 applies apply to a committee of the board of a stock corporation, except that references in s. 180.0824 to a committee "created under s. 180.0825" shall be read as a committee "created under this section". Sections 181.0820, 181.0821, and 181.0824 apply to a committee of the board of a mutual, except that references to "board" shall be read as "committee", "majority" in s. 181.0824 (1) shall mean a majority of the members of the board appointed to serve on the committee, and "majority" in s. 181.0824 (2) shall mean a majority of the members of the board appointed to serve on the committee who are present at the meeting.

AB420,12 Section 12. 612.02 (2) (a) of the statutes is amended to read:

AB420,7,8 612.02 (2) (a) The name of the corporation which shall contain the words "Town Mutual";

AB420,13 Section 13. 612.13 (3) of the statutes is amended to read:

AB420,7,12 612.13 (3) Duties. The board shall manage direct the business and affairs of the corporation and shall not delegate its power or responsibility to any person except as specifically provided otherwise in this chapter.

AB420,14 Section 14. 612.13 (4) of the statutes is amended to read:

AB420,7,18 612.13 (4) Adjustment committee. The directors shall may annually appoint from their own number an adjustment committee of at least 3 persons, to adjust or supervise the adjustment of losses under s. 612.53. If no adjustment committee is appointed, the entire board shall act as the adjustment committee to adjust or supervise the adjustment of losses under s. 612.53.

AB420,15 Section 15. 612.14 (intro.) of the statutes is renumbered 612.14 and amended to read:

AB420,8,2 612.14 Reports. The secretary and the treasurer An officer or person designated by an officer of the company shall present to the annual meeting written reports showing the condition of the town mutual on the previous December 31 and its activity during the preceding calendar year, including: any information required to be presented by the articles or bylaws or by the commissioner. The officer or person designated by an officer shall include in the reports a sufficient level of information to reasonably inform members about the financial condition of the town mutual.

AB420,16 Section 16. 612.14 (1) to (12) of the statutes are repealed.

AB420,17 Section 17. 612.31 (4) (m) of the statutes is amended to read:

AB420,8,5 612.31 (4) (m) Assuming reinsurance, except under sub. (6); or

AB420,18 Section 18. 612.31 (5) of the statutes is repealed.

AB420,19 Section 19. 612.31 (6) of the statutes is repealed.

AB420,20 Section 20. 612.32 (1) of the statutes is amended to read:

AB420,8,15 612.32 (1) Real property outside territory. Town mutuals may insure real property and contents in villages and cities partially located in the specified territory, real property and contents in an immediately adjoining county owned by a member immediately adjoining and contiguous to land owned by the same member which is who has real property and contents insured by the town mutual within the specified territory, and real property and contents used exclusively by the member and his or her family for recreational purposes.

AB420,21 Section 21. 612.32 (2) (a) of the statutes is amended to read:

AB420,8,24 612.32 (2) (a) Farm property. A town mutual may provide coverage for livestock, while temporarily located outside the town mutual's territory, for farm products, while temporarily located for a period not exceeding 2 years outside the town mutual's territory, and for farm machinery and farm vehicles while temporarily located, for a period not exceeding 6 months, one year outside its territory, subject to limitations in the policy or in the articles or bylaws with respect to the distance from the territory to which the property may be removed without suspension of the coverage.

AB420,22 Section 22. 612.32 (4) of the statutes is repealed.

AB420,23 Section 23. 612.33 (1) of the statutes is amended to read:

AB420,9,6 612.33 (1) Permitted and prohibited reinsurance. A town mutual may cede reinsurance only under s. 612.31 (6), or to an insurer authorized to do business in this state under s. 612.71 or ch. 611 or 618, or under arrangements which are approved in advance by the commissioner and which are subject to the controls the commissioner prescribes.

AB420,24 Section 24. 612.33 (2) (b) of the statutes is amended to read:

AB420,9,17 612.33 (2) (b) Nonproperty insurance. To the extent that a town mutual provides insurance under s. 612.31 (3), it shall obtain reinsurance of at least a 90% proportional share of each risk or it shall obtain excess of loss reinsurance with a retention in a similar dollar amount with an insurer authorized to do such business in this state, in either instance not to exceed $25,000 on each risk. The commissioner may permit a town mutual to retain a larger percentage or have a greater excess of loss retention level if he or she finds that the interests of the members will not be endangered thereby, or may require it to reinsure a larger percentage or obtain a lesser excess of loss retention level if he or she finds that the interests of the members make it advisable. The commissioner may by rule require other reinsurance.

AB420,25 Section 25. 612.53 (1) (title) of the statutes is repealed.

AB420,26 Section 26. 612.53 (1) of the statutes is renumbered 612.53.

AB420,27 Section 27. 612.53 (2) of the statutes is repealed.

AB420,28 Section 28. 612.71 of the statutes is repealed.

AB420,29 Section 29. 620.04 (1) of the statutes is renumbered 620.04 (1) (intro.) and amended to read:

AB420,9,25 620.04 (1) Additional restrictions. (intro.) If the commissioner finds that by reason of investment conditions generally or of the financial condition or current investment practice of an individual insurer, the interests of insureds, creditors, or the public are or may be endangered, the commissioner may do any of the following:

AB420,10,5 (a) For insurers that are not restricted under s. 620.03, impose reasonable and temporary restrictions upon the investments of an individual insurer, including prohibition or divestment of a particular investment.

AB420,30 Section 30. 620.04 (1) (b) of the statutes is created to read:

AB420,10,9 620.04 (1) (b) For insurers that are subject to s. 620.03, impose reasonable restrictions upon the investments of an individual insurer, including prohibition or divestment of a particular investment.

AB420,31 Section 31. 623.06 (1) of the statutes is created to read:

AB420,10,11 623.06 (1) In this section:

AB420,10,15 (a) "Accident and health insurance contract" means a contract that incorporates morbidity risk and provides protection against economic loss resulting from accident, sickness, or medical conditions and as may be specified in the valuation manual.

AB420,10,18 (b) "Appointed actuary" means a qualified actuary who is appointed in accordance with the valuation manual to prepare the actuarial opinion required in sub. (1r).

AB420,10,20 (c) "Deposit-type contract" means a contract that does not incorporate mortality or morbidity risks and as may be specified in the valuation manual.

AB420,10,23 (d) "Law enforcement agency," "National Association of Insurance Commissioners," or "regulatory agency" includes the employees, agents, consultants, and contractors of each such entity.

AB420,11,2 (e) "Life insurance," "life insurance contract," "life insurance policy," or "plan of life insurance" means a contract that incorporates mortality risk, including annuity and pure endowment contracts, and as may be specified in the valuation manual.

AB420,11,4 (f) "Operative date of the valuation manual" means the date determined under sub. (9) (b).

AB420,11,7 (g) "Principle-based valuation" means a reserve valuation that uses one or more methods, or one or more assumptions, determined by the insurer and that is required to comply with sub. (10) as specified in the valuation manual.

AB420,11,12 (h) "Qualified actuary" means an individual who is qualified to sign the applicable statement of actuarial opinion in accordance with the American academy of actuaries qualification standards for actuaries signing such statements and who meets the requirements specified in the valuation manual, if the valuation manual is in effect, and any other requirements that the commissioner may by rule specify.

AB420,11,15 (i) "Tail risk" means a risk that occurs either when the frequency of low probability events is higher than expected under a normal probability distribution or when there are observed events of very significant size or magnitude.

AB420,11,18 (j) "Valuation manual" means the manual of valuation instructions as adopted by the National Association of Insurance Commissioners under sub. (9) or as subsequently amended.

AB420,32 Section 32. 623.06 (1) (f) of the statutes, as created by 2015 Wisconsin Act .... (this act), is repealed and recreated to read:

AB420,11,22 623.06 (1) (f) "Operative date of the valuation manual" means the effective date of this paragraph .... [LRB inserts date], as determined under sub. (9) (b).

AB420,33 Section 33. 623.06 (1c) of the statutes is repealed.