A bill that was submitted during the Washington State 2021 legislative session would see the creation of a framework for registering eligible captive insurers and imposing a premium tax on the risk covered by premiums allocable to the state.
The proposed bill would bring $29 million in back taxes and generate revenues of more than $2.5 million per year going forward.
Senate Bill 5315 would see eligible captive insurers must 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.
One official that testified before a legislative committee says the new framework provides regulatory authority over captive insurance and ensures there are important consumer protections.
One official that testified states: “This bill authorises the use of captives and allows for appropriate oversight and taxation. After passage of this bill, the revenue assumptions may increase as companies reinstate their captive.”
According to the senate bill, eligible captive insurers must register with the Washington Office of the Insurance Commissioner (OIC) within 120 days of either the effective date of this bill or issuing a policy that covers risks within the state.
Captives would also be required to pay an initial registration fee of $2,500, and a renewal fee may be set by the OIC not to exceed $2,500 per year.
It highlights that an eligible captive insurer that fails to register is subject to penalties and fines applicable to unlawful unauthorised insurers.
Registered eligible captive insurers may only provide property and casualty insurance to a captive owner or to the captive owner's affiliates and obtain or provide reinsurance for ceded or assumed risks insured in this state or elsewhere.
It explains if not previously paid to the OIC, premium taxes are due from an eligible captive insurer for any period after 1 January 2011, but are not subject to penalties and fees. As of 1 July 2021, penalties, interest, and fees may be imposed on registered eligible captive insurers.
Penalties and fees are credited to the general fund. The bill report notes: “Methodology to determine Washington risks by eligible captive insurers must be shared with the OIC.”
The bill is sponsored by Senator Mark Mullet and Senator Perry Dozier.
The senate bill is scheduled for an executive session in the Senate Committee on Business, Financial Services and Trade on 28 January.
Captive insurers are not currently authorised under Washington state law. Additionally, companies using them are not paying a 2 per cent premium tax on the insurance they buy.
The Washington Insurance Commissioner Mike Kreidler launched a study in August 2020 to determine how many organisations in the state are not paying insurance premium tax as required under state law.
The study, undertaken by Milliman, launched with an initial survey that was sent to around 5,000 businesses and other organisations in Washington asking if they use a captive insurance company.
It was noted that information gathered from the study would not identify organisations failing to pay the premium tax but will show an overall projected amount owed.
In October 2020, the OIC revealed that captive insurance companies remain a priority after they were listed on its 2021 legislative agenda.
In 2019, Commissioner Kreidler added captives insurance to both his 2020 and 2021 legislative priority list.
Kreidler spoke to Captive Insurance Times in February last year about his views and plans for captive insurance operating with Washington State.
