The Office of the Commissioner of Insurance (OCI) has been made aware that insurers and agents are offering dividend plans on guaranteed cost worker's compensation insurance policies which may be contrary to the Wisconsin insurance laws. Guaranteed cost policy as used in this bulletin means a non-retrospectively rated policy. In addition, it appears that not all worker's compensation insurers are complying with the dividend filing requirements.
OCI is cognizant that some insurers and agents are offering dividend plans on guaranteed cost policies in which a portion of the estimated annual premium is not billed or collected during the term of the policy. The portion of the deferred estimated annual premium is usually, however not always, related to the anticipated dividend to be paid on the policy. In addition, we have been made aware that some insurers and/or agents are deliberately suppressing the estimated payroll for the policy to gain an artificially low estimated annual premium at the start of the policy.
Billing arrangements on guaranteed cost policies where the entire estimated annual premium is not collected during the term of the policy are considered an unfair inducement to enter into a contract of insurance. Therefore, billing arrangements that allow for the collection of any portion of the estimated annual premium after the policy expires are contrary to s. 628.34 (2) (a), Wis. Stat. This section provides that no insurer, employe of an insurer or insurance intermediary may seek to induce any person to enter into an insurance contract or to terminate an existing insurance contract by offering benefits not specified in the policy, nor may any insurer make any agreement of insurance that is not clearly expressed in the policy to be issued.
The entire estimated annual premium on a guaranteed cost policy should be collected evenly throughout the term of the policy in accordance with rules that govern worker's compensation insurance in Wisconsin. The only premium due after the policy expiration date of a guaranteed cost policy should be additional premium resulting from an audit. The applicable rule is Rule VI - F. Deposit Premium paragraph 2. "Amount Payable."
The payrolls used to develop the estimated annual premium should be as accurately estimated as possible at the inception of the policy. The deliberate suppression of payroll to artificially reduce the estimated annual premium would also constitute both an unfair marketing practice and a misrepresentation and therefore, be contrary to ss. 628.34 (1) and (2) (a), Wis. Stat.
All insurers and/or agents currently offering the dividend plans that are contrary to the Wisconsin insurance laws should immediately stop using such plans. Insurance companies and agents that continue to offer such plans after the date of this directive will be subject to administrative action by this office.
In addition, a review of recent dividend filings made pursuant to s. 631.51, Wis. Stat., indicates that not all insurers are complying with the filing requirements of this section. Section 631.51, Wis. Stat., provides that an insurer may distribute a portion of surplus attributable to the policies in amounts and with classifications the Board of Directors determines to be fair and reasonable.
Any dividend declaration should be made at a meeting of the Board held in accordance with the by-laws and/or articles of the insurer. Since the distribution of dividends must be from surplus attributable to specified policies, a dividend declaration should include only those policies that expired prior to the Board's declaration. Dividends cannot be declared on policies that have not expired, as surplus attributable to policies can only be determined after the policies expire.
Section 631.51, Wis. Stat., requires that a schedule of the basis for a dividend distribution be filed with the Commissioner. When a participating endorsement is attached to a policy, the schedule of dividend distribution must be filed with the Commissioner after the Board's declaration but prior to the distribution of the dividend. If the policy is not endorsed as participating, the schedule of dividend distribution must be filed with the Commissioner after the Board's declaration but at least 30 days prior to the distribution of the dividend.
An insurer may satisfy the filing requirements of s. 631.51, Wis. Stat., by providing the following information to the Commissioner:
- The date the Board declared the dividend.
- The effective and expiration dates of policies covered by the Board's declaration.
- The schedule of distribution. The schedule of distribution should include the class or classes of business included in the declaration, the name of any applicable safety group, any premium thresholds or loss ratio restrictions, and the dividend percentage to be paid for each class of business.
- The date dividend payments will be issued.
- Any other information necessary to determine which policies for which the Board of Directors has declared dividends should also be included in the filing.
While previously filed with OCI, a list of policyholders and the dividend to be paid to those policyholders is not sufficient information to satisfy the filing requirements. Section 631.51, Wis. Stat., requires that the Board of Directors determine that the distribution of the dividend be fair and reasonable. A list of the policyholders and the applicable dividend to be paid does not provide adequate information to our office to substantiate that the Board of Directors has determined that the distribution is fair and reasonable.
Worker's compensation dividend filings made pursuant to s. 631.51, Wis. Stat. should be sent to the attention of:
Jo A. LeDuc, CPCU, API
Office of the Commissioner of Insurance
P. O. Box 7873
Madison, WI 53707-7873
Questions regarding this bulletin should be directed to Ms. LeDuc at (608) 267-9708 or email@example.com.