Producer Duties and Responsibilities

Wisconsin law imposes significant duties on insurance producers to protect consumers and maintain market integrity.

Fiduciary Duty

Producers as Fiduciaries

Wisconsin producers owe a fiduciary duty to their clients:

Fiduciary Duty Means:

• Acting in the client's best interest, not just the producer's interest
• Providing honest, accurate information about coverage
• Disclosing material facts and policy limitations
• Handling client funds and information responsibly
• Avoiding conflicts of interest

Fiduciary Obligations Include:

Consequences of Breaching Fiduciary Duty

• Civil liability for damages caused by breach
• Disciplinary action by OCI (license suspension/revocation)
• Criminal prosecution for fraud or theft
• Loss of professional reputation
• Errors & omissions insurance claims

Disclosure Requirements

Material Facts Must Be Disclosed

Producers must disclose all material facts to applicants:

Material Fact: Information that would influence a reasonable person's decision to purchase insurance or affect coverage terms

Examples of Material Facts:

• Policy exclusions and limitations
• Coverage gaps or uncovered perils
• Insurer's financial condition or rating
• Differences between policy options
• Premium factors and rating criteria
• Cancellation or non-renewal provisions
• Claims handling procedures
• Coverage territory limitations

Commission Disclosure

Wisconsin Law Requires:

• Producers must disclose commission amounts upon request
• Cannot charge hidden fees or undisclosed charges
• Must provide written commission disclosure if applicant requests
• Commission information must be accurate and complete

Prohibited Practices:

• Charging fees in addition to disclosed premium without consent
• Misrepresenting commission amounts
• Hiding compensation in "service charges" or "administrative fees"
• Charging different commissions for identical coverage without disclosure

Application Requirements

Producers must ensure insurance applications:

• Are complete and accurate
• Reflect applicant's true answers and information
• Include all material information
• Are signed by applicant (physical or electronic signature)
• Are promptly submitted to insurer

Prohibited Application Practices:

• Forging or altering applicant signatures
• Making false statements on applications
• Omitting material information applicant provided
• Backdating applications to obtain coverage for prior losses
• Submitting applications without applicant authorization

Prohibited Practices

Rebating

Wisconsin prohibits rebating under Chapter 631:

Rebating Definition: Offering or giving anything of value not specified in the policy as an inducement to purchase insurance

Examples of Prohibited Rebating:

• Offering cash kickbacks to purchasers
• Giving gift cards or merchandise as inducement
• Offering to pay part of premium for client
• Providing free services (car washes, dinners) to induce purchase
• Offering stocks, securities, or other property

Limited Exceptions:

• Items of nominal value (under $25) with insurer approval
• Educational materials without commercial value
• Promotional items provided by insurer to all policyholders equally

Exam Tip: Rebating is STRICTLY PROHIBITED in Wisconsin. Even small gifts or cash incentives to induce insurance purchases violate rebating prohibitions. Don't confuse rebating (illegal) with commissions (legal).

Misrepresentation

Chapter 631 prohibits misrepresentation:

Types of Prohibited Misrepresentation:

Consequences of Misrepresentation:

• License suspension or revocation
• Civil liability for damages
• Criminal prosecution for fraud
• Fines up to $25,000 per violation
• Restitution to affected consumers

Twisting

Twisting: Making misrepresentations to induce policyholder to lapse, forfeit, or replace existing coverage

Prohibited Twisting Practices:

• Misrepresenting benefits of new policy vs. existing policy
• Omitting disadvantages of replacement (new waiting periods, higher premiums)
• Falsely claiming existing insurer is financially unstable
• Using misleading comparisons to induce replacement
• Pressuring client to replace coverage without full disclosure

Legal Policy Replacement:

• Must provide complete, accurate comparison
• Must disclose disadvantages of replacement
• Must document that replacement is in client's best interest
• Must follow Wisconsin replacement regulations

Churning

Churning: Replacing insurance coverage primarily to generate commissions for producer

Characteristics of Churning:

• Frequent policy replacements without benefit to client
• Replacements primarily benefit producer through new commissions
• Inadequate disclosure of replacement disadvantages
• Pattern of replacements across multiple clients

OCI Action on Churning:

• Investigate complaints of frequent replacements
• Review producer's replacement practices
• Discipline producers engaging in churning
• Require restitution of improper commissions

Unfair Discrimination

Wisconsin prohibits unfair discrimination in insurance:

Permitted Rating Factors:

• Factors actuarially justified
• Based on sound underwriting principles
• Consistently applied to all applicants
• Not based on prohibited characteristics

Prohibited Discrimination:

• Race, color, or ethnicity
• Religion or creed
• National origin
• Sex or gender (with limited exceptions)
• Marital status (in most contexts)
• Age (with limited exceptions for legitimate actuarial factors)
• Disability unrelated to risk
• Genetic information

Lawful Underwriting:

• Assessing risk based on legitimate factors
• Credit-based insurance scores (with disclosures)
• Driving records for auto insurance
• Prior claims history
• Property characteristics and location
• Business operations for commercial insurance

Exam Tip: Discrimination based on protected characteristics (race, religion, etc.) is ALWAYS prohibited. However, risk-based underwriting using legitimate factors (driving record, claims history, property condition) is LAWFUL and expected.

Record Keeping Requirements

Required Records

Producers must maintain adequate records:

Records to Maintain:

• Customer files with applications and policy documents
• Premium payment records
• Correspondence with insurers and clients
• Commission records and compensation details
• Continuing education certificates
• Errors & omissions insurance documentation
• Complaint records and resolutions

Retention Period: Minimum 3 years from date of transaction or policy expiration

OCI Examination Authority:

• OCI may examine producer records during market conduct exams
• Producers must provide records upon OCI request
• Failure to maintain records = regulatory violation

Errors & Omissions Insurance

Wisconsin requires producers to maintain E&O insurance OR demonstrate financial responsibility:

E&O Insurance Requirements:

• Minimum coverage amounts set by OCI
• Coverage for professional liability arising from producer activities
• Must maintain continuous coverage while licensed
• Proof of coverage provided to OCI upon request

Purpose of E&O Insurance:

• Protects consumers harmed by producer errors or omissions
• Covers professional negligence claims
• Provides financial resources for claim settlements
• Protects producer from personal financial liability

Alternative to E&O: Demonstrate financial responsibility through bond or other means acceptable to OCI