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Property and Casualty Advisory Council

Insurance Regulation Law Update William J. Toman

The business and regulatory environment for insurance is constantly changing, and part of our client service platform involves staying on top of those changes. One way we do this is by attending the periodic meetings of the industry-regulator-consumer liaison committees sponsored by the Wisconsin Office of the Commissioner of Insurance (OCI) for life, health, and property and casualty insurance. The following is our report on the discussion from the most recent meeting of the Property and Casualty Insurance Advisory Council.

Introductions

Deputy Commissioner Dan Schwartzer began the meeting by presenting a plaque of appreciation to Ann Landre, the longtime executive director of the Community Insurance Information Center. The center educates consumers in the Milwaukee area about insurance.

Changes at OCI include Melody Esquivel, who is the new chief of the agent licensing bureau; Tim Cornelius, who is assisting the market regulation bureau with process improvement; and Rebecca Rebholz, who is the interim chief of the property and casualty bureau until a replacement is named for Jaclyn de Medicci.

State Based Systems (SBS)

Cari Lee, director of the Bureau of Market Regulation, reported that OCI is processing agent licensing applications in 1-2 days since the move to SBS (as compared to 9-1/2 days before the move). To allow for an upgrade in March 2017, the system will be shut down for 4 days over a weekend.

OCI Website

J.P. Wieske, OCI’s legislative liaison and public information officer, reported that OCI is migrating to a new website in early August. The new site will be based on the state portal and will be scalable for portable devices. OCI needs testers who have experience with the site to see if it makes sense and is intuitive. Contact Roger Frings, OCI's policy initiatives advisor-administrative.

National Association of Insurance Commissioners (NAIC)

Wieske reminded the council that Commissioner Ted Nickel is vice president of the NAIC, and thus will become president next year.

Cybersecurity. Wieske noted that this task force is working on an Insurance Data Security Model Law. The chair, North Dakota Insurance Commissioner Adam Hamm, would like to have the model adopted by August because he is leaving office. There are some concerns about rushing the model, however, so it probably will not be adopted until fall. The model addresses the subject from many angles, including agents, insurers, and risk. Regulators want to understand data protection and consumer protection issues. One point missing from the discussion so far is that the entity suffering a data breach was the victim of a crime.

Richard Wicka, OCI’s deputy chief legal counsel, said it was not clear yet whether the model would be an accreditation standard. In response to a question, Wieske stated that the legislature would have to act in order to fit the model into our statutes, and that whether any changes would still meet an accreditation standard is more art than science. In response to another question, he noted that the Federal Insurance Office has not been active in this area, and that federal activity has been at the Congressional level. In that arena, one issue is that banks want insurers included in any federal law, because credit cards are often used to pay premiums. Of course, the NAIC wants insurers to be governed by state law.

Big Data. Wieske noted that the New Orleans NAIC meeting included a major hearing on this subject which, of course, was dubbed “Datapalooza.” The NAIC’s notes on the testimony are a good summary, but one interesting item was that millennials seem to care less than others about sharing their data. Regulators are concerned about how data is collected; whether the consumer is aware of what is collected and how it is used; whether the data affects premiums; ensuring that data is not used in a discriminatory manner; how data collection can be monitored with limited state resources; and how much data states should seek from the industry (some states want more than Wisconsin). The working group will be gathering more data and looking at next steps.

Market Regulation Accreditation. Lee said this working group came up with a list of requirements for accreditation, such as following the market regulation handbook (which could be added to an OCI technical bill) and maintaining minimum staffing levels (which may be difficult for OCI given the Wisconsin civil service laws). OCI submitted comments on the list. The group also seems to want to require collaboration among states, which is difficult given differing laws. In response to a question, Wicka noted that these differences in the laws mean that accreditation will not necessarily cut down on multistate exams, at least in the short term.

The working group is hoping to submit the full accreditation package to the Executive Committee at the December NAIC meeting, which would mean finalizing it this summer. Adopting the package in Wisconsin would require changes in both the statutes and regulations. This item will stay on the council’s agenda.

Corporate Governance Annual Disclosure. Wicka noted that the NAIC adopted this model, which is headed toward becoming an accreditation standard next summer. That would mean the states would have to adopt it by 2020. The model requires a confidential annual filing on corporate governance (e.g., board structure, committees, management structure, compensation, and performance) with no company size threshold before a filing is required. The filing should not be an undue burden, as companies can refer to other filings to avoid duplication, and there probably will not be a lot of changes in the filing from year-to-year.

The council chair suggested that the report may lead to informal requirements, such as those imposed through OCI examination reports. In response to questions, Wicka said the filing will be used to get a better understanding of company operations and governance risks, as well as to confirm compliance with requirements, and that the model does not require a diversity disclosure, but that some states are interested in including one.

Federal Insurance Office (FIO)

Wieske noted that FIO does not have a lot of authority, but it is mucking around in a number of areas, including attempts to take over international issues from the states. Rep. Blaine Luetkemeyer (R-Mo.) introduced legislation that would establish procedures to be followed before any international agreement on insurance would apply in the U.S. Finally, the NAIC has been trying to work with FIO on a terrorism risk survey, but the agency is not easy to work with.

Volunteer Driver Issues

Wieske reminded the council that OCI publishes a list of insurers that provide coverage for volunteer drivers under a personal automobile insurance policy even if the volunteer receives reimbursement of related expenses. That list dates back to 2008, and there has been some confusion about the impact of Act 18, which dealt with ride-sharing services. Therefore, OCI is looking at circulating another survey, probably to all property and casualty companies, in order to update the list. OCI might conduct the survey periodically, and create a publication on the subject. In response to a question about how "volunteer" is defined for purposes of the Insurance Services Office (ISO) form, which does not exclude coverage for volunteers, Wieske noted that the legislature might have some interest in defining it.

Unfair Inducements

Wieske reported that OCI is sending out a survey to agents and insurers on what should constitute an unfair inducement (rebate) under Wisconsin law. Lee noted that the issue usually arises due to complaints, often from agents. Clearly any perks must be available uniformly, but OCI wants to ensure that it is being consistent on the numerous other questions that arise, such as:

  • Should there be a dollar threshold? Some states set a figure between $25 and $200.
  • Should there be a difference between personal and commercial lines? With respect to the latter, can back office services constitute an unfair inducement?
  • Does it matter whether the insurance is actually purchased?
  • Should there be a difference between items that affect administrative expense vs. those that affect losses?
  • Is there still a consumer protection justification for the ban on unfair inducements given that some states have repealed it?

Wieske noted that input from trade associations might be more helpful than multiple responses to the same effect. In response to a question, he said OCI will release the scrubbed results of the survey, and that how OCI proceeds will depend on those results. It will be easy if there is a consensus that makes sense to OCI. Otherwise, OCI will have internal policy discussions and expose a proposal, probably by the end of this year or sometime next year. Lee suggested that it may be a good subject for consideration by a council that includes the various constituencies. Statutory changes may be needed, but OCI may be able to handle it with a bulletin. In response to a question, Wieske stated that the old bulletin on the subject remains in effect.

Short Rate Cancellation

Wicka noted that there has been some confusion regarding the rules on short rate cancellation of property and casualty insurance in § Ins 6.10 of the Wisconsin Administrative Code and the 1989 bulletin that interpreted it. Therefore, OCI will be issuing a new bulletin that will outline the front and back end notices that are required (insurers usually give one or the other). The notices will not have to be filed with OCI. The bulletin will take effect in August.

"For-Hire" Motor Carriers Minimum Coverage

Wieske explained that Act 135 was designed to clarify that intrastate "for-hire" motor carriers are subject to the same coverage requirements as interstate carriers. The Department of Transportation (DOT) says this has been their interpretation all along and, notwithstanding that there may have been some confusion on this point, DOT will not be flexible in enforcement. If any insurers will have filing issues in accommodating these motor carriers, they should contact Wieske. OCI will be issuing a bulletin on the subject.

Local Government Property Insurance Fund

Wieske reported that participation in this state-sponsored fund has declined from 835 members at the end of 2014, to 315 members at the end of 2015, to 250 members as of April 2016 (with about $6.6 million in premium).

Wisconsin Insurance Plan

Jeffrey Lambert of the Wisconsin Insurance Plan, which is Wisconsin's property insurer of last resort, reported that in January the plan finally began implementing its new software (which has pieces of programs borrowed from other states), to be rolled out in the first or second quarter of 2017. At its meeting in December, he warned the board of a possible service disruption due to this roll-out. Also, OCI has agreed to make changes in § Ins 4.10 of the Wisconsin Administrative Code, which governs the plan. Finally, the plan has seen some premium growth, but it is not due to changes in the standard market.

Agent Licensing Exam

Lee noted that there will be a workshop in July on the state exam for agent licensing. The commissioner heard that some exam questions are tricky or not relevant, so OCI is looking for volunteers to participate in the workshop and review the exam.

For more information on the Insurance Regulation Group, please contact William Toman at (608) 283-2434/william.toman@quarles.com or your Quarles & Brady attorney.