Date:June 23, 2004
To:All Insurers Authorized to do Business in Wisconsin
From:Jorge Gomez, Commissioner of Insurance
Subject:Newly Enacted Legislation--2003 Wisconsin Acts 261, 302, 178, and 294

This bulletin contains a summary of the provisions of 2003 Wisconsin Acts 261, 302, 178, and 294. You should review the bulletin and determine which laws apply to your company. This bulletin is for informational purposes and is not to be considered the office's interpretation of these laws. It is highly recommended that the readers of this bulletin obtain copies of those laws determined to be applicable to their situation or operations. You may obtain copies of any legislation from Legislative Documents, 1 East Main Street, Madison, WI 53703, and (608) 266-2400 or through the Legislature's web page at www.legis.state.wi.us.


ITEMS INCLUDED IN WISCONSIN ACT 261

628.347 Suitability of annuity sales to senior consumers. Requires insurers and, under certain circumstances, agents to maintain a suitability compliance program for the sale of annuities to seniors age 65 and over, and prohibits unsuitable sales of annuities to senior consumers.

These provisions first apply to recommendations for the purchase or exchange of annuities that are made on the effective date of Act 261. The effective date for this provision of Act 261 is November 1, 2004.

632.435 Standard nonforfeiture law for individual deferred annuities. Act 261 amends s. 632.435 to allow insurers to set the minimum crediting interest rate for nonforfeiture values in annuities to an indexed rate determined that is based on the monthly yield on actively traded U.S. treasury securities, adjusted to a constant maturity of five years, as published by the Federal Reserve Board. The actual rate used, however, may not exceed 3% or be lower than 1%.

These changes first apply to annuity contracts issued on April 30, 2006. However, an insurer may elect to comply with the changes to 632.435 with annuity contracts issued after April 29, 2004.

612.22 Mergers of Town Mutual insurers and mutual insurance corporations. Act 261 permits, under certain circumstances, the merger of a domestic (ch. 611) mutual insurance company with a town mutual insurance company (ch. 612) with the surviving company being the town mutual insurer.

These changes became effective on April 30, 2004.

612.13 Limits participation of Agents and Insiders on Town Mutual Boards. Act 261 limits the number of town mutual board of directors who may be agents or employees of the town mutual. If a town mutual insurer has eight or less directors, no more than one director may be an employee or representative of the town mutual. The law also prohibits employees and representatives of the town mutual making up a majority of the town mutual board of directors.

These changes first apply on April 30, 2006. The commissioner may allow a town mutual an extension of one year beyond April 30, 2006 to achieve compliance.

600.03 Out of State Group Policies certificates. Act 261 amends the definition of "form" under s. 600.03, Wis. Stat., to make it clear group certificates must be filed under s. 631.20, Wis. Stat.

These changes became effective on April 30, 2004.

601.31 Surplus Lines listing fees. Act 261 amends 601.31(1)(t), Wis. Stat., to create an annual listing fee of $500.00 for surplus lines companies. It should be noted that, due to limitations in resources, the OCI is currently not listing surplus lines insurers.

These changes became effective on April 30, 2004.

Chapter 646 Technical revisions to the Insurance Security Fund. Act 261 amends ch. 646, Wis. Stat., to provide more uniformity with the guaranty fund laws of other states. These changes were enacted to ease the administration in national life and health insolvencies by adopting certain NAIC guaranty association model act language. In addition, recent large property and casualty insurer insolvencies have highlighted the need to clarify certain provisions of ch. 646, Wis. Stat., with regard to fund coverage and claims procedure, and these amendments provide the necessary clarification. Finally, the amendments do some technical, non-substantive clean-up.

These changes first apply to liquidation proceedings in which a liquidation order is issued on or after April 30, 2004.

611.56 Committees of Directors. Act 261 revises s. 611.56, Wis. Stat., to permit boards of directors of domestic stock and mutual insurance corporations to designate a minority of persons to committees of the board of directors who are not directors, but in a non-voting capacity.

These changes became effective on April 30, 2004

Chapter 641. Act 261 repeals Chapter 641.

These changes became effective on April 30, 2004.

Changes suggested by NAIC Accreditation Review. Act 261 makes clear that the office may share information with other regulators, including on a confidential basis; limits insurer investments in noninsurance subsidiaries to the lesser of 10% of assets or 50% of surplus; and repeals an exemption from reporting of extraordinary dividends for dividends paid to domestic insurers.

These changes became effective on April 30, 2004


ITEMS INCLUDED IN WISCONSIN ACT 302

100.203 Vehicle protection product warranties. Act 302 requires that warrantors who issue warranties on vehicle protection products register with the office before operating as a warrantor in Wisconsin. A vehicle protection product is defined as a device, system, or service installed on or applied to a vehicle that is designed to prevent loss or damage to the vehicle and includes alarm systems, body-part marking products, steering locks, window-etch products, pedal and ignition kill switches, and electronic, radio, and satellite tracking devices. The registration must contain information about the warrantor as required by the Act, including, but not limited to, proof of financial responsibility and a copy of each warranty to be used. The act requires that this information also be filed annually. The warranties must contain certain disclosures to warranty holders.

600.01 (1) (b) 11 Scope of application. Act 302 amends s. 600.01 (1) (b), Wis. Stat., to expressly provide that Chapters 600 to 646 do not apply to warrantors, sellers or administrators of vehicle protection product warranties.

601.31 (1) (km) Fees. The office may set a fee, not to exceed $250 annually, for processing and maintaining registration records for vehicle protection product warranties.

601.41 (1) General duties and powers. Act 302 amends s. 601.42 (1), Wis. Stat., to require the office to administer and enforce s. 100.203, Wis. Stat.

631.37 (4) (g) Special cancellation provisions. Act 302 amends s. 631.37 (4), Wis. Stat., to provide that s. 632.185 (2) (e), Wis. Stat., applies to cancellations of warranty reimbursement insurance policies providing financial responsibility for warrantors issuing vehicle protection product warranties.

632.185 Vehicle protection product warranty insurance policy. Act 302 sets forth the requirements for provisions contained in warranty reimbursement insurance policies providing financial responsibility for warrantors issuing vehicle protection product warranties and requirements that the policies be filed with the office.

2003 Wisconsin Act 302 becomes effective on the first day of the 7th month beginning after publication. The Act was published on May 4, 2004, making the effective date December 1, 2004. The office is required to promulgate a rule to enact the statute.


ITEMS INCLUDED IN WISCONSIN ACT 178

This Act adds three new paragraphs to s. 632.89, Wis. Stat., modifying how insurers calculate the minimum benefits for mental health and AODA services. Specifically, the Act requires insurers, for new policies and upon renewal of existing policies, to exclude costs and payments associated with diagnostic testing and prescription drugs from the minimum coverage dollars available to insureds. Further, the Act specifies that insurers are to use the lesser of actual payments, including reimbursements, or the amount charged by the provider when calculating the amount that is to be applied against the minimum coverage available to insureds for mental health and AODA services under the mandate.

Act 178 took effect on April 21, 2004, and applies to all group health insurance policies issued or renewed on or after the effective date.


ITEMS INCLUDED IN WISCONSIN ACT 294

Relating to Electronic Transactions and Records.

This Act enacts federal regulation governing electronic transactions and signatures by significantly modifying ch. 137, Wis. Stat. Subchapter I addresses non-electronic notarization of records and delineates how a notary seal meets the requirements of the subchapter.

Subchapter II addresses electronic transactions and records and specifies the types of transactions that may be subject to or exempt from being transacted electronically. Subchapter II states that any record that is required by law to be submitted in writing to a governmental unit may be submitted electronically with an electronic signature when that governmental unit consents.

Subchapter II contains numerous definitions and requirements that insurers should review carefully. For example, in order for an insurer to utilize electronic communications it would need to have agreement with the insured and be able to assure that the insured could read, print and retain the electronic record. The Act specifies that the subchapter does not apply to the cancellation or termination of health insurance or benefits or life insurance benefits, excluding annuities. Electronic record retention requires the entity to retain the information contained in the record that accurately reflects the information in the record after it was first generated in its final form and the record remains accessible for future reference. The Act permits governmental units to specify additional requirements for the retention of any record subject to the jurisdiction of that governmental unit.

This is an extensive modification and should be reviewed carefully.

Act 294 first took effect on May 4, 2004.


PERSONS TO CONTACT FOR ADDITIONAL INFORMATION

If you have questions, please put them in writing and address them to the appropriate contact person listed below:

Suitability of Annuity SalesMike Honeck
(608) 266-0097
Annuity Guarantee Rate IndexingMike Honeck
(608) 266-0097
Mergers of Town MutualsPeter Medley
(608) 267-5030
Limits on Participation on Town
Mutual Boards of Directors
Roger Peterson
(608) 267-4384
Out of State Group Policy CertificatesMike Honeck
(608) 266-0097
Surplus Lines Listing FeesYvone Sherry
(608) 266-0091
Insurance Security Fund changesFred Nepple
(608) 266-7726
Committees of DirectorsPeter Medley
(608) 267-5030
Accredidation Review changesFred Nepple
(608) 266-7726
Mental Health Coverage ChangesDiane Dambach
(608) 266-0106
Electronic Transactions and RecordsSusan Ezalarab
(608) 266-8885
Vehicle Protection Product WarrantiesRhonda Peterson
(608) 267-7186