1.4 Wisconsin Insurance Security Fund
Key Takeaways
- The Wisconsin Insurance Security Fund protects policyholders when an insurer becomes insolvent
- The Fund covers claims up to statutory limits for Wisconsin residents with covered policies
- Property & Casualty claims are typically covered up to $300,000 per claim
- The Fund is financed through assessments on insurers doing business in Wisconsin
- Producers must inform consumers that insurance is backed by the Security Fund but cannot use it as a sales inducement
Last updated: January 2026
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:
| Coverage Type | Maximum Security Fund Payment |
|---|---|
| Property Claims | $300,000 per claim |
| Auto Liability Claims | $300,000 per claim |
| General Liability | $300,000 per claim |
| Workers' Compensation | Full amount of claim (no cap) |
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:
- Insurer Declared Insolvent: Court or OCI declares insurer insolvent
- Claims Reviewed: Security Fund reviews pending claims
- Funding Need Determined: Calculate total amount needed to pay claims
- Assessments Levied: OCI assesses all licensed insurers proportionally
- Insurers Pay: Insurers pay assessments to Security Fund
- 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:
- Workers' Compensation claims (highest priority, paid in full)
- 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
Test Your Knowledge
What is the typical maximum amount the Wisconsin Insurance Security Fund will pay for a property insurance claim?
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Test Your Knowledge
How is the Wisconsin Insurance Security Fund financed?
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