Wisconsin Insurance Security Fund

The Wisconsin Insurance Security Fund protects consumers when insurance companies become insolvent and cannot pay claims.

Purpose and Authority

Why the Security Fund Exists

Purpose:

• Protect policyholders from financial loss due to insurer insolvency
• Maintain public confidence in the insurance system
• Ensure claims are paid even when insurers fail
• Provide safety net for Wisconsin insurance consumers

Legal Authority: Wisconsin Statutes Chapter 646

Administration: Administered by OCI under Commissioner oversight

Coverage and Limits

What the Security Fund Covers

The Fund provides coverage for:

Covered Claims:

• Property insurance claims (homeowners, dwelling, commercial property)
• Casualty insurance claims (auto liability, general liability)
• Workers' compensation claims
• Unpaid premiums on covered policies

Eligibility Requirements:

• Claimant must be Wisconsin resident OR claim arose in Wisconsin
• Policy issued by insurer licensed in Wisconsin
• Claim arose before insolvency date or within coverage period
• Claim covered by insolvent insurer's policy

Coverage Limits

Property & Casualty Limits:

Exam Tip: The typical Security Fund limit is $300,000 per claim for most P&C lines. Workers' compensation claims are paid in full without limit. These limits protect most policyholders but may not cover extremely large claims.

What is NOT Covered

Exclusions from Security Fund Coverage:

• Claims by insurers, reinsurers, or other insurance companies
• Claims from self-insured entities
• Punitive or exemplary damages
• Claims by directors, officers, or shareholders of insolvent insurer
• Claims that exceed $300,000 limit (excess not paid)
• Claims from non-Wisconsin residents for non-Wisconsin losses
• Amounts recoverable from other sources (other insurance, third parties)

Funding the Security Fund

How the Fund is Financed

Assessment System:

• Fund financed through assessments on insurers licensed in Wisconsin
• Assessments made AFTER an insolvency occurs (not pre-funded)
• Each insurer assessed based on premiums written in Wisconsin
• Assessments capped at 2% of insurer's annual premium in affected lines

Assessment Process:

1. Insurer Declared Insolvent: Court or OCI declares insurer insolvent
2. Claims Reviewed: Security Fund reviews pending claims
3. Funding Need Determined: Calculate total amount needed to pay claims
4. Assessments Levied: OCI assesses all licensed insurers proportionally
5. Insurers Pay: Insurers pay assessments to Security Fund
6. Claims Paid: Security Fund pays valid claims up to limits

Tax Offsets:

• Insurers may offset Security Fund assessments against premium taxes
• Reduces net cost to insurers
• Spreads insolvency costs across industry

Claim Process

Filing a Claim with the Security Fund

Step 1: Insurer Insolvency

• OCI places insurer in receivership/liquidation
• Public notice of insolvency published
• Deadline set for filing claims (typically 12-18 months)

Step 2: File Claim

• Submit claim to Security Fund or OCI-appointed receiver
• Provide documentation: policy, proof of loss, claim details
• Include all supporting evidence

Step 3: Claim Review

• Security Fund reviews claim for coverage and validity
• Determines claim amount within policy limits
• Verifies claimant eligibility

Step 4: Payment Decision

• Security Fund approves or denies claim
• If approved, payment issued up to $300,000 limit
• If denied, claimant notified with reason

Step 5: Appeal Process

• Claimant may contest denial through OCI
• Hearing available for disputed claims
• Final decision by OCI or court

Claim Priority

If Fund assets insufficient to pay all claims immediately:

Payment Priority:

1. Workers' Compensation claims (highest priority, paid in full)
2. Other claims in order of submission (up to $300,000 per claim)

Producer Responsibilities

Disclosing Security Fund Protection

Producers MAY:

• Inform clients that Wisconsin has an Insurance Security Fund
• Explain that Fund provides limited protection if insurer becomes insolvent
• Provide factual information about Fund coverage and limits
• Reference OCI website for Security Fund details

Producers MAY NOT:

• Use Security Fund as sales inducement ("Buy from this small insurer—the Security Fund will protect you!")
• Misrepresent extent of Security Fund protection
• Suggest Security Fund eliminates need to evaluate insurer financial strength
• Guarantee Security Fund will pay claims in all circumstances

Best Practices

Recommended Producer Practices:

• Emphasize importance of insurer financial strength ratings (A.M. Best, S&P)
• Explain that Security Fund is safety net, not primary protection
• Recommend adequate coverage limits beyond Security Fund caps
• Disclose that very large claims may exceed $300,000 Security Fund limit
• Suggest clients diversify coverage among multiple strong insurers for large exposures