AB542: Bill Text

LRB-3245/1

PJK:jld:pg

2007 - 2008 LEGISLATURE

2007 Assembly BILL 542

October 16, 2007 - Introduced by Representatives F. Lasee, Nygren, Albers, Hahn, A. Ott and Bies, cosponsored by Senators Breske, Schultz, Lehman, Cowles, Olsen, Grothman and Roessler. Referred to Committee on Insurance.

AB542,2,2 An Act to repeal 612.51 (1) and 628.347 (1) (c); to renumber and amend 631.20 (6) (a); to amend 40.55 (1), 100.205 (6) (intro.), 605.03 (1) (a), 607.02 (1), 628.347 (title), 628.347 (1) (b), 628.347 (2) (a), 628.347 (2) (b) 1., 628.347 (2) (b) 2., 628.347 (2) (b) 3., 628.347 (2) (b) 4., 628.347 (2) (c) (intro.), 628.347 (3) (f) 2., 628.347 (5) (a), 628.347 (5) (b), 628.347 (5) (c), 628.347 (6) (b), 628.347 (6) (c), 628.347 (7), 628.347 (8) (a), 631.01 (4m), 631.20 (1) (a), 631.20 (2) (intro.), 631.20 (3), 631.20 (6) (title), 631.20 (6) (b), 631.21 (1) (intro.), 631.23 (1) (intro.), 631.36 (1) (a), 632.32 (4) (intro.), 632.45 (2), 646.35 (6) (bm) and 893.80 (8); and to create 14.82, 601.58, 631.20 (1) (c), 631.20 (1g), 631.20 (1m), 631.20 (6) (a) 2. and 631.20 (6) (c) of the statutes; relating to: the Interstate Insurance Product Regulation Compact, the Interstate Insurance Product Regulation Commission, filing insurance policy forms with the commissioner of insurance, suitability of annuity contracts, and granting rule-making authority.

Analysis by the Legislative Reference Bureau

Interstate Insurance Product Regulation Compact

This bill enacts the Interstate Insurance Product Regulation Compact (compact). The stated purposes of the compact include promoting and protecting the interests of consumers of annuity, life insurance, disability income, and long-term care insurance products (insurance products); developing uniform standards for insurance products; establishing a central clearinghouse for review of insurance products, and advertisements related to insurance products, that are filed with the Interstate Insurance Product Regulation Commission (commission); and giving regulatory approval to insurance products and related advertisements filed with the commission. The compact accomplishes its purposes through the commission, which is created in the bill. Each compacting state has one member on the commission, with one vote. Under the bill, the commissioner of insurance (commissioner), or his or her designee, is the commission member from this state.

The commission is a body politic and corporate. The bill specifies, among other things, all of the following related to the commission: its organization, including required management and legislative committees; its powers, including rule making; meeting, voting, and notice requirements; requirements related to record keeping and confidentiality of its records; liability, and immunity from liability, of its members; monitoring and enforcement of compliance by the compacting states with its rules, standards, bylaws, and operating procedures; the financing of its operations, including the imposition of fees; auditing requirements; and reporting requirements.

One of the most important functions of the commission is establishing uniform standards for insurance products, which have the force and effect of law in the states that enact the compact for products filed with the commission. The uniform standards relate to the form of a policy or contract, including an application and evidence of coverage, for an insurance product and are intended to prohibit the use of inconsistent, misleading, or ambiguous provisions in insurance products. Before adopting a uniform standard, the commission must give written notice to the legislative committees of the compacting states with jurisdiction over insurance matters. A uniform standard becomes effective 90 days after it is promulgated by the commission, or at a later date determined by the commission. However, a compacting state may opt out of a uniform standard, by legislation or administrative rule, in accordance with procedures outlined in the bill. In addition, when enacting the compact a compacting state may prospectively opt out of all uniform standards established by the commission relating to long-term care insurance products; under this bill, however, Wisconsin does not prospectively opt out of those uniform standards.

Under current law, except for certain very limited types of insurance, all insurance forms must be filed with and approved by the commissioner before they may be used in this state. Under the bill, an important function of the commission is receiving and reviewing insurance products, rate filings for disability income and long-term care insurance products, and advertisements relating to long-term care insurance products for which the commission has developed uniform standards, which are voluntarily filed with the commission by insurers seeking the approval of the commission. The commission may approve those insurance products, rate filings, and advertisements that satisfy applicable uniform standards adopted by the commission. The approval has the force and effect of law in the compacting states, and any insurance product that is approved by the commission may be sold in any of the compacting states. In addition, if the commission determines that the advertisement of an insurance product, other than a long-term care insurance product, could have the capacity or tendency to mislead the public, the commission may require an insurer to submit its advertisement for that insurance product for the commission's review or approval before the advertisement may be used. The commission may also designate products and advertisement that may be self-certified without prior approval by the commission.

The bill provides that the compact becomes effective and binding when two states enact it, except that the commission becomes effective for purposes of adopting uniform standards and reviewing and approving insurance products only after 26 states, or states representing greater than 40 percent of the premium volume for insurance products, become compacting states. In general, only states that enact the compact are subject to its provisions and the authority of the commission. The bill provides that a state may withdraw from the compact by repealing its enacting statute. A compacting state may be terminated from the compact if it defaults in the performance of any of its obligations or responsibilities under the compact.

Insurance form filing with the commissioner

Under current law, with a few exceptions, no insurance policy or group certificate form may be used unless it has been filed with and approved by the commissioner. Any form that has not been disapproved in 30 days after filing is approved. The statutes set out the grounds on which the commissioner may disapprove a form. The commissioner may order that the use of a form be discontinued if, after a hearing, the commissioner finds that an approved form would now be disapproved if newly filed. Penalties may not be imposed against an insurer for using a form that does not comply with a statute or rule if the statute or rule was in effect when the form was approved. However, penalties may be imposed against an insurer for using a form that does not comply with a statute or rule if the statute or rule takes effect after the date on which the form was approved.

This bill provides that, with a number of specified exceptions, a form first used on or after the effective date of the provision (which is approximately three months after the bill is passed and published) that has not already been filed by that date may be used without approval by the commissioner. The specified exceptions, which must still be filed and approved before use, include forms for long-term care insurance, worker's compensation policies, Medicare replacement or supplement policies, health care liability insurance, policies under the Health Insurance Risk-Sharing Plan, rustproofing warranty insurance, and warranty contracts; forms ordered to be filed by the commissioner or required to be filed by a rule of the commissioner; forms that include appraisal or arbitration provisions not specifically authorized by rule; and forms containing certain clauses that require explicit approval. For forms that do not have to be filed and approved before use, however, the insurer must still file the form with the commissioner 30 days before use and certify that the form complies with the statutes related to insurance and any rules promulgated under those statutes. The commissioner may still, after a hearing, order the discontinuance of the use of a form that did not require approval before use if there are grounds for disapproval. Any form that was approved by, or self-certified to and not disapproved by, the commission is not subject to any requirement for filing with the commissioner.

The bill provides that penalties may not be imposed against an insurer for the use of a form solely based on a finding of the commissioner that the content of the form is misleading. The bill also provides that, if an insurer uses a form that was filed but not approved before use and that violates a statute related to insurance or any rules promulgated under those statutes, the insurer violates that statute or rule and is subject to penalties.

Suitability of annuity contracts

Under current law, an insurance intermediary, or insurer if no intermediary is involved, is prohibited from making a recommendation to a person who is 65 years old or older (senior consumer) about purchasing or exchanging an annuity 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 makes these provisions apply to all consumers, not just to those who are 65 years old or older.

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:

AB542, s. 1 Section 1. 14.82 of the statutes is created to read:

AB542,5,5 14.82 Interstate insurance product regulation commission. There is created an interstate insurance product regulation commission as specified in s. 601.58 (3). The member of the commission representing this state shall be the commissioner of insurance or his or her designated representative, who must be an official or employee of the office of the commissioner of insurance. The commission member shall serve without compensation but shall be reimbursed from the appropriation under s. 20.145 (1) (g) for actual and necessary expenses incurred in the performance of his or her duties. The commission has the powers and duties granted and imposed under s. 601.58.

AB542, s. 2 Section 2. 40.55 (1) of the statutes is amended to read:

AB542,5,14 40.55 (1) Except as provided in sub. (5), the state shall offer, through the group insurance board, to eligible employees under s. 40.02 (25) (bm) and to state annuitants long-term care insurance policies which have been approved for sale in this state by filed with the office of the commissioner of insurance and which have been approved for offering under contracts established by the group insurance board if the insurer requests that the policy be offered and the state shall also allow an eligible employee or a state annuitant to purchase those policies for his or her spouse or parent.

AB542, s. 3 Section 3. 100.205 (6) (intro.) of the statutes is amended to read:

AB542,5,19 100.205 (6) (intro.) Every warrantor shall purchase a policy of insurance covering the financial integrity of its warranties. The policy of insurance shall be on a form approved by the commissioner of insurance under s. 631.20 and shall have the following minimum provisions:

AB542, s. 4 Section 4. 601.58 of the statutes is created to read:

AB542,5,24 601.58 Interstate insurance product regulation compact. The interstate insurance product regulation compact is hereby enacted into law and entered into by this state with all other jurisdictions legally joining therein, in substantially the following form:

AB542,6,2 (1) Article I - Purposes. Through means of joint and cooperative action among the compacting states, the purposes of this compact include all of the following:

AB542,6,4 (a) To promote and protect the interest of consumers of individual and group annuity, life insurance, disability income, and long-term care insurance products.

AB542,6,6 (b) To develop uniform standards for insurance products covered under the compact.

AB542,6,10 (c) To establish a central clearinghouse to receive and provide prompt review of insurance products covered under the compact and, in certain cases, advertisements related thereto, submitted by insurers authorized to do business in one or more compacting states.

AB542,6,12 (d) To give appropriate regulatory approval to those product filings and advertisements satisfying the applicable uniform standard.

AB542,6,15 (e) To improve coordination of regulatory resources and expertise between state insurance departments regarding the setting of uniform standards and review of insurance products covered under the compact.

AB542,6,16 (f) To create the interstate insurance product regulation commission.

AB542,6,18 (g) To perform these and such other related functions as may be consistent with the state regulation of the business of insurance.

AB542,6,19 (2) Article II - Definitions. In this compact:

AB542,6,23 (a) "Advertisement" means any material designed to create public interest in a product or to induce the public to purchase, increase, modify, reinstate, borrow on, surrender, replace, or retain a policy, as more specifically defined in the rules and operating procedures of the commission.

AB542,6,25 (b) "Bylaws" mean those bylaws established by the commission for its governance, or for directing or controlling the commission's actions or conduct.

AB542,7,2 (c) "Commission" means the interstate insurance product regulation commission established by this compact.

AB542,7,5 (d) "Commissioner" means the chief insurance regulatory official of a state, including, but not limited to, commissioner, superintendent, director, or administrator.

AB542,7,8 (e) "Compacting state" means any state that has enacted this compact legislation and that has not withdrawn under sub. (14) (a) or been terminated under sub. (14) (g).

AB542,7,10 (f) "Domiciliary state" means the state in which an insurer is incorporated or organized; or, in the case of an alien insurer, its state of entry.

AB542,7,12 (g) "Insurer" means any entity licensed by a state to issue contracts of insurance for any of the lines of insurance covered by this section.

AB542,7,14 (h) "Member" means the person chosen by a compacting state as its representative to the commission, or his or her designee.

AB542,7,16 (i) "Noncompacting state" means any state that is not at the time a compacting state.

AB542,7,18 (j) "Operating procedures" mean procedures promulgated by the commission implementing a rule, a uniform standard, or a provision of this compact.

AB542,7,23 (k) "Product" means the form of a policy or contract, including any application, endorsement, or related form that is attached to and made a part of the policy or contract, and any evidence of coverage or certificate, for an individual or group annuity, life insurance, disability income, or long-term care insurance product that an insurer is authorized to issue.