The Wisconsin Insurance Plan

Most clients find property coverage in the voluntary market. Some cannot: the building may be in rough condition, the client may have been canceled after several losses, or every insurer you represent may have declined. Wisconsin does not leave those owners without coverage. It runs a residual market for basic property insurance, the Wisconsin Insurance Plan, and it gives producers specific duties toward clients who need it.

Why the Plan exists

When the Commissioner of Insurance (OCI) finds that a kind of coverage is not readily available in the voluntary market and the public interest requires it, the Commissioner may set up a mandatory risk-sharing plan for risks “equitably entitled to, but otherwise unable to obtain, that coverage” (s. 619.01 (1) (a), Wis. Stat.). Such a plan must interfere as little as possible with the voluntary market and spread its burden fairly across the industry (s. 619.01 (1) (b)).

The Wisconsin Insurance Plan is that facility for property. Section Ins 4.10, Wis. Adm. Code, defines it as the nonprofit, unincorporated mandatory risk-sharing facility that provides basic property insurance and helps applicants obtain it. The rule also states a second purpose: to encourage property improvement and reasonable loss prevention in Wisconsin.

Every insurer licensed to write basic property insurance in Wisconsin, other than town mutuals, assessment mutuals and reinsurers, is a member (s. Ins 4.10 (2), (5)), and members share the Plan’s losses and expenses by assessment in proportion to their Wisconsin property premiums (s. Ins 4.10 (15)).

What the Plan covers

The Plan writes basic property insurance on risks at a fixed location (s. Ins 4.10 (3) (a)):

• coverage of the customary fire policy with extended coverage, the dwelling-policy type of protection; and
• coverage at least equivalent to a modified coverage form homeowners policy, which includes personal liability.

All risks at a fixed location are eligible for inspection and consideration except motor vehicles, farm risks and manufacturing risks (s. Ins 4.10 (4) (a)). A “habitational risk” is a dwelling designed for not more than 4 families or 4 apartments, along with its outbuildings, trailer homes at a fixed location, household contents and tenants’ contents.

The Plan’s maximum limits at one location (s. Ins 4.10 (4)):

How an applicant gets in

Any person with an insurable interest in an eligible risk who has received a notice of rejection or cancellation from an insurer within the last 6 months may apply. The notice must accompany the application (s. Ins 4.10 (9) (a)).

The Plan inspects the property at no cost to the applicant, though it may write some classes on the applicant’s or agent’s representations without inspecting (s. Ins 4.10 (9) (b), (10)). The applicant or agent may request a copy of the inspection report. The Plan itself may bind coverage, immediately or after the inspection.

Within 5 business days after it has the application, the inspection report and any added information, the Plan sends an action report with one of three outcomes (s. Ins 4.10 (11) (a)):

1. Accepted. Surcharges may apply for substandard conditions, but the report must list the improvements that will remove each charge.
2. Declined unless improved. The report lists reasonable improvements; once they are made, the property is reinspected.
3. Declined for failing the Plan’s underwriting standards.

A declination may not rest on neighborhood or area location or on an environmental hazard beyond the owner’s control. The mere fact that a building does not meet every current building code is not, by itself, a reason to decline. Grounds that do count include poor physical condition, vacancy or unoccupancy for 60 consecutive days (unless rehabilitation is actively under way and on track to finish within one year), an outstanding order to vacate or demolish, a combination of neglect signs such as unpaid property taxes and utilities shut off, and the loss history of the applicant or any insured (s. Ins 4.10 (12)). Liability coverage is withheld until hazards such as broken steps, missing handrails, unfenced pools or known vicious animals are corrected (s. Ins 4.10 (13)).

Staying in, and getting out

The Plan may cancel or nonrenew only for grounds listed in its rule (s. Ins 4.10 (14) (a)). They include nonpayment of premium, material misrepresentation, facts or changed conditions that make the risk unacceptable, at least 65% of a building’s rental units unoccupied without an approved rehabilitation program, damage left unrepaired for more than 60 days, permanent repairs not begun within 60 days after a claim is paid, abandonment for 90 days or more, and an arson or insurance-fraud conviction of a person with a financial interest in the property. The Plan follows the same cancellation and nonrenewal notice law as any insurer, s. 631.36.

Every notice of declination, cancellation, nonrenewal or reduction in coverage must tell the applicant or insured of the right to a hearing before OCI, if a petition is filed within 30 days after the notice is mailed. A timely petition against a cancellation, nonrenewal or reduction keeps the coverage in force during the proceeding, so long as the insured keeps paying the premium (s. Ins 4.10 (16)).

The Plan is meant to be temporary. After 36 months of coverage and before 48 months, each risk is reviewed for the voluntary market and sent to the agent of record to search for a voluntary insurer (s. Ins 4.10 (14) (e)). Voluntary insurers may not refuse a risk solely because it was declined elsewhere or has been in a residual market (s. Ins 6.68 (3) (c)).

Your role as a producer

Wisconsin makes the Plan part of every property producer’s job.

• Tell clients it exists. Every agent must give anyone seeking coverage of a kind the Plan offers full information on how to obtain it whenever the business is not placed in the voluntary market (s. 619.01 (3)). Voluntary insurers reinforce this: most cancellation and nonrenewal notices are not effective unless they tell the policyholder how to apply to the risk-sharing plan, except when the ground is nonpayment and the notice says so (s. 631.36 (7), (8)).
• Help them apply. Agents must assist applicants and submit applications that meet the Plan’s requirements, including the rejection or cancellation notice (s. Ins 4.10 (19) (d)).
• Know your limits. You are not the Plan’s agent. You may not bind coverage for the Plan, alter its policies, settle its losses or commit it to anything (s. Ins 4.10 (19) (b), (c)). Telling a client “you’re covered” by the Plan before the Plan binds is a promise you have no authority to make.
• Commission. The Plan pays the agent the applicant designates a commission of 10% of premium, and the agent refunds commission proportionally on any return premium (s. Ins 4.10 (17)). If no agent is designated, the Plan keeps the commission.

Lesson summary

• The Wisconsin Insurance Plan is the mandatory, nonprofit risk-sharing facility for basic property insurance, created under s. 619.01 and s. Ins 4.10.
• Insurers licensed for basic property insurance, other than town and assessment mutuals, are members and share Plan losses in proportion to their property premiums.
• The Plan writes fire with extended coverage and a modified homeowners-type policy on fixed-location risks, excluding motor vehicles, farm risks and manufacturing risks, with stated maximum limits.
• An applicant needs an insurable interest and a rejection or cancellation notice from the last 6 months; the inspection is free.
• The Plan answers within 5 business days and may not decline because of neighborhood location or hazards beyond the owner’s control.
• Plan decisions carry a right to an OCI hearing on a petition filed within 30 days, and risks are reviewed for the voluntary market between 36 and 48 months.
• Agents must inform and assist applicants but may never bind, alter, settle or act for the Plan; the designated agent earns a 10% commission.