Washington Governor Jay Inslee, Shutterstock
Washington state Governor Jay Inslee has signed legislation that creates a framework for captive insurers doing business in the state.
Second Substitute SB 5315 requires captives operating in Washington to register with the Office of the Insurance Commissioner (OIC), and pay a registration fee of $2,500. Captives must also pay an annual 2 percent premium tax on insurance by March 1 every year, starting in 2022.
An independent study commissioned by OIC predicted the rules will generate around $2.5 million in revenue per year. It believes captives will owe more than $29 million in past premium taxes, due July 1, 2021.
The legislation was requested by insurance commissioner Mike Kreidler and sponsored by Democratic senator Mark Mullet.
Kreidler said the legislation is “an important step to allow companies to continue utilising this prudent risk management tool, while paying their fair share of premium tax to the state’s general fund, like other insurance companies have done for decades.”
He added: “This law has a profound impact on the use of captives nationally to make sure they have the financial resources they need and have accountability for the actions they take for those they are promising to protect.”
Washington is not one of the 37 states that authorises the formation of captive insurers. Kreidler set up a self-reporting plan in December 2018, which encouraged some businesses to report their use of captives. This led to captives serving Alaska Air Group, Starbucks, Costco and Microsoft making initial payments of around $4 million in previously unpaid premium tax, fines and interest.
Washington state collects over $1.2 billion in premium tax every two years from more than 2,400 insurance companies doing business in the state. These funds are the state’s second largest source of revenue.
Jay Inslee, Washington, Second Substitute SB 5315, Office of the Insurance Commissioner, Mike Kreidler, Mark Mullet