“Washington could have instituted a self-procurement tax like several other states — instead, the Office of the Insurance Commissioner (OIC) chose pride over prudence,” according to Rich Smith, president of the Vermont Captive Insurance Association (VCIA).
Writing on the VCIA blog, Smith stated his frustrations with the Washington State captive bill that passed the Washington State Senate in early March.
The bill would see eligible captive insurers pay a 2 per cent premium tax for insurance directly procured by and provided to its parent or affiliate for Washington risks during the preceding calendar year.
Smith states: “Besides being poorly drafted, the bill sets a terrible precedent whereby acquiescing some regulatory oversight by the Washington State insurance commissioner on captives domiciled in other states.”
Captive insurance has been on Mike Kreidler, the Washington insurance commissioner, agenda for some time. He fined several captives over the years including Microsoft’s captive, Cypress Insurance, Alaska Air’s captive, ASA Assurance, and Costco’s captive insurance company, NW Re limited.
Speaking to Captive Insurance Times in February last year, Kreidler said: “OIC’s legislation would not ban captives. Instead, it would create a legal framework to allow their use. However, the bill would not make Washington a captive domicile state. Washington is not a captive domicile state, so captive insurers cannot be set up in this state.”
Smith explains that for whatever reason, the OIC has not liked that companies in Washington can set up captives to better manage the risks of their organisations.
The OIC seems to have turned a blind eye on the benefits of captives to these organisations, and in turn to the State of Washington, according to Smith, and instead they do not approve.
Smith says: “For the companies and organisations headquartered in Washington, it has been frustrating I know. Finding a solution that gives some clarity to their operations as well as boundaries around taxes and potential fines forced a deal that neither helps the State of Washington, the companies doing business there, nor the broader captive community.”
“At some point, this law, if passed could discourage the use of captives by Washington State businesses and nonprofits. All it will do is limit control and add costs,” Smith adds.
The bill is now going through the same process in the House of Representatives. If the bill passes the house, it can then be signed by respective leaders and sent to Governor Jay Inslee.
