LRB-3735/1
PJK/CMH/RJM:cjs:jf
2003 - 2004 LEGISLATURE
November 19, 2003 - Introduced by Senator Schultz, cosponsored by
Representative Ladwig, by request of the Office of the Commissioner of
Insurance. Referred to Committee on Agriculture, Financial Institutions and
Insurance.
SB320,3,2
1An Act to repeal 617.225 (5), 632.435 (12), chapter 641, 646.01 (1) (b) 9. a.,
2646.01 (1) (b) 9. b., 646.01 (1) (b) 9. c., 646.01 (1) (b) 9. d., 646.31 (2) (b) 1., 646.31
3(2) (b) 2. b., 646.31 (2) (b) 3., 646.31 (3), 646.31 (5), 646.35 (2), 646.51 (2), 646.51
4(3) (b) and 646.73;
to renumber 646.51 (3) (a) (title);
to renumber and amend
5601.41 (4) (a), 611.26 (4), 612.22 (3), 646.01 (1) (b) 9. (intro.), 646.11 (1), 646.31
6(10), 646.31 (13), 646.33 (1), 646.35 (3) (intro.) (except 646.35 (3) (title)), 646.35
7(3) (a), 646.35 (3) (b), 646.35 (3) (c), 646.35 (4), 646.51 (1), 646.51 (3) (a) 1., 646.51
8(3) (a) 2. and 646.51 (4);
to consolidate, renumber and amend 646.31 (2) (b)
92. (intro.) and a.;
to amend 600.03 (21), 601.31 (1) (k) (intro.), 601.465 (3)
10(intro.), 601.64 (1), 609.98 (1), 609.98 (4) (a), 609.98 (4) (b), 611.56 (1), 611.56 (2),
11612.22 (title), 612.22 (1), 612.22 (4), 612.22 (6), 617.225 (1), 632.435 (1) (intro.),
12632.435 (1) (a), 632.435 (1) (b), 632.435 (5), 645.58 (1) (intro.), 646.12 (2) (d),
13646.12 (2) (f) 2., 646.12 (2) (f) 3., 646.12 (4), 646.13 (title), 646.13 (1) (intro.),
14646.13 (1) (b), 646.13 (2) (intro.), 646.13 (2) (b), 646.13 (2) (c), 646.13 (2) (d),
1646.13 (3) (intro.), 646.13 (3) (a), 646.13 (3) (b), 646.13 (3) (c) (intro.), 646.13 (3)
2(c) 2., 646.13 (4), 646.15 (title), 646.15 (1) (a) (intro.), 646.15 (1) (a) 1., 646.15 (1)
3(a) 2., 646.15 (1) (a) 4., 646.21 (2), 646.31 (2) (a) 1., 646.31 (2) (a) 2., 646.31 (2)
4(f) (title), 646.31 (2) (f) 2., 646.31 (6) (a), 646.31 (6) (b), 646.31 (7), 646.31 (8),
5646.31 (9) (a), 646.31 (9) (b), 646.31 (9) (c), 646.31 (9) (d), 646.31 (11), 646.32 (1),
6646.325 (1), 646.325 (2) (intro.), 646.325 (2) (a) (intro.), 646.325 (2) (b), 646.33
7(2), 646.33 (3), 646.35 (3) (title), 646.35 (5), 646.35 (6) (a), 646.35 (6) (b), 646.35
8(6) (bm), 646.35 (6) (c) (intro.), 646.35 (6) (c) 1. (intro.), 646.35 (6) (c) 1. b., 646.35
9(6) (c) 2. (intro.), 646.35 (6) (c) 2. b., 646.51 (3) (c), 646.51 (5), 646.51 (6), 646.51
10(7) (a), 646.51 (8), 646.51 (9) (b) 1., 646.51 (9) (b) 2., 646.60 (1) (a) and 646.61 (2);
11to repeal and recreate 632.435 (4), 646.01 (1) (b) 1. and 646.01 (1) (b) 11.; and
12to create 601.31 (1) (tc), 601.41 (4) (a) 1., 601.41 (4) (a) 2., 611.26 (4) (a), 611.26
13(4) (b), 612.13 (1m), 612.22 (3) (b), 628.347, 646.01 (1) (a) 2. k., 646.01 (1) (a) 2.
14L., 646.01 (1) (b) 11m., 646.01 (1) (b) 15., 646.01 (1) (b) 16., 646.01 (1) (b) 17.,
15646.01 (1) (b) 18., 646.03 (1m), 646.03 (2n), 646.03 (2p), 646.03 (4), 646.03 (5),
16646.11 (1) (d), 646.11 (1) (e), 646.13 (2) (g), 646.16, 646.31 (1) (d) 10. and 11.,
17646.31 (2) (g), 646.31 (9) (cm), 646.31 (10) (b), 646.31 (13) (b), 646.31 (13) (c),
18646.31 (13) (d), 646.33 (1) (b), (c) and (d), 646.33 (2m) (b), 646.35 (4) (b), 646.35
19(7), 646.35 (8), 646.35 (9), 646.35 (10), 646.51 (1c), 646.51 (3) (am) 2. and 646.51
20(4) (a), (b) and (d) of the statutes;
relating to: requirements for
21recommendations made by insurers and insurance intermediaries to senior
22consumers in annuity transactions; committees of the board of directors of
23domestic stock and mutual corporations; annuity minimum nonforfeiture
24amount; merger of town mutual and domestic mutual insurance corporation
1into a town mutual; the insurance security fund; other miscellaneous changes
2to the insurance provisions; and granting rule-making authority.
Analysis by the Legislative Reference Bureau
Suitability of recommendations
This bill prohibits an insurance intermediary, or insurer if no intermediary is
involved, from making a recommendation to a person who is 65 years old or older
(senior consumer) about purchasing or exchanging an annuity that results in the
purchase or exchange of an annuity in accordance with the recommendation, unless
the intermediary or insurer has reasonable grounds to believe that the
recommendation is suitable for the senior consumer based on facts disclosed by the
senior consumer. Before making a recommendation, the intermediary or insurer
must make reasonable efforts to obtain information from the senior consumer about
his or her financial status, tax status, and investment objectives.
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:
SB320, s. 1
1Section
1. 600.03 (21) of the statutes is amended to read:
SB320,6,42
600.03
(21) "Form" means a policy
, group certificate, or application prepared
3for general use and does not include one specially prepared for use in an individual
4case. See also "policy".
SB320, s. 2
5Section
2. 601.31 (1) (k) (intro.) of the statutes is amended to read:
SB320,6,76
601.31
(1) (k) (intro.) For filing an annual statement
, except as provided in s.
7641.13:
SB320, s. 3
8Section
3. 601.31 (1) (tc) of the statutes is created to read:
SB320,6,109
601.31
(1) (tc) For each annual listing by the commissioner for surplus lines
10insurance under s. 618.41 (6) (d), $500.
SB320, s. 4
11Section
4. 601.41 (4) (a) of the statutes is renumbered 601.41 (4) (a) (intro.)
12and amended to read:
SB320,6,1513
601.41
(4) (a) (intro.) The commissioner shall issue such prohibitory,
14mandatory
, and other orders as are necessary to secure compliance with the law.
An
15order requiring remedial measures or restitution may include any of the following:
SB320, s. 5
16Section
5. 601.41 (4) (a) 1. of the statutes is created to read:
SB320,6,1717
601.41
(4) (a) 1. Remedial measures or restitution under s. 628.347 (5).
SB320, s. 6
18Section
6. 601.41 (4) (a) 2. of the statutes is created to read:
SB320,6,2219
601.41
(4) (a) 2. Remedial measures or restitution to enforce s. 611.72 or ch.
20617, including seizure or sequestering of voting securities of an insurer owned
21directly or indirectly by a person who has acquired or who is proposing to acquire
22voting securities in violation of s. 611.72 or ch. 617.
SB320, s. 7
23Section
7. 601.465 (3) (intro.) of the statutes is amended to read:
SB320,7,224
601.465
(3) (intro.) Testimony, reports, records
, communications, and
25information that are obtained by the office from
, or provided by the office to, any of
1the following, under a pledge of confidentiality or for the purpose of assisting in the
2conduct of an investigation or examination:
SB320, s. 8
3Section
8. 601.64 (1) of the statutes is amended to read:
SB320,7,104
601.64
(1) Injunctions and restraining orders. The commissioner may
5commence an action in circuit court in the name of the state to restrain by temporary
6or permanent injunction or by temporary restraining order any violation of chs. 600
7to 655, s. 149.13 or 149.144, any rule promulgated under chs. 600 to 655 or any order
8issued under s. 601.41 (4).
Except as provided in s. 641.20, the The commissioner
9need not show irreparable harm or lack of an adequate remedy at law in an action
10commenced under this subsection.
SB320, s. 9
11Section
9. 609.98 (1) of the statutes is amended to read:
SB320,7,1312
609.98
(1) Definition. In this section, "premiums" has the meaning given
13under s. 646.51
(3) (a) 1 (1c) (c).
SB320, s. 10
14Section
10. 609.98 (4) (a) of the statutes is amended to read:
SB320,7,1515
609.98
(4) (a) To pay an assessment under s. 646.51 (3)
(a) or (b) (am).
SB320, s. 11
16Section
11. 609.98 (4) (b) of the statutes is amended to read:
SB320,7,2017
609.98
(4) (b) To the extent that the amount on deposit exceeds 1% of premiums
18written in this state by the health maintenance organization insurer in the preceding
19calendar year and the deposit is not necessary to pay an assessment under s. 646.51
20(3)
(a) or (b) (am).
SB320, s. 12
21Section
12. 611.26 (4) of the statutes is renumbered 611.26 (4) (intro.) and
22amended to read:
SB320,8,623
611.26
(4) Other subsidiaries. (intro.) An insurance corporation may form or
24acquire other subsidiaries than those under subs. (1) to (3). The investment in such
25subsidiaries may be counted toward satisfaction of the compulsory surplus
1requirement of s. 623.11 and the security surplus standard of s. 623.12 to the extent
2that the investment is a part of the leeway investments of s. 620.22 (9) for the first
3$200,000,000 of assets or to the extent that the investment is within the limitations
4under s. 620.23 (2) (a) and (b) for other assets.
The commissioner may limit
5investment in subsidiaries under this subsection by rule or order. Unless approved
6by the commissioner, an insurance corporation may not do any of the following:
SB320, s. 13
7Section
13. 611.26 (4) (a) of the statutes is created to read:
SB320,8,98
611.26
(4) (a) Invest in a subsidiary more than 10 percent of its assets or 50
9percent of its capital and surplus, whichever is less.
SB320, s. 14
10Section
14. 611.26 (4) (b) of the statutes is created to read:
SB320,8,1311
611.26
(4) (b) Invest in a subsidiary to the extent that the insurer's capital and
12surplus with regard to policyholders will not be reasonable in relation to the insurer's
13outstanding liabilities or adequate to meet the insurer's financial needs.
SB320, s. 15
14Section
15. 611.56 (1) of the statutes is amended to read:
SB320,8,2315
611.56
(1) Appointment. If the articles or bylaws of a corporation so provide,
16the board by resolution adopted by a majority of the full board may designate one or
17more committees, each consisting of
at least 3
or more directors serving at the
18pleasure of the board. The board may designate one or more directors as alternate
19members of any committee to substitute for any absent member at any meeting of
20the committee.
Any committee under this section may include one or more nonvoting
21members who are not directors. The designation of a committee and delegation of
22authority to it shall not relieve the board or any director of any responsibility
23imposed by law.
SB320, s. 16
24Section
16. 611.56 (2) of the statutes is amended to read:
SB320,9,7
1611.56
(2) Delegation; major committees. When the board is not in session,
2a committee satisfying all of the requirements for the composition of a board under
3s. 611.51 (2) to (4) may exercise any of the powers of the board in the management
4of the business and affairs of the corporation, including action under ss. 611.60 and
5611.61, to the extent authorized in the resolution or in the articles or bylaws; except
6that any such committee may
be composed of include 7 or more directors if the
7corporation has 9 or more directors.
SB320, s. 17
8Section
17. 612.13 (1m) of the statutes is created to read:
SB320,9,109
612.13
(1m) Inside directors. (a) Beginning 2 years after the effective date
10of this paragraph .... [revisor inserts date], all of the following apply:
SB320,9,1211
1. If a town mutual has fewer than 9 directors, no more than one director may
12be an employee or representative of the town mutual.