Just as we here in Vermont are starting to pack up our skis (not the hardcore, of course), the captive insurance industry is facing a new slippery slope.
Legislation approved March 9 by the Washington State Senate would set new requirements for captive insurance companies licensed in other domiciles but doing business in Washington State. Under the legislation, S.B. 5315, captives licensed elsewhere and operating in Washington would be required to pay an initial registration fee of $2,500 and be assessed an annual two percent premium tax on insurance provided to their parents or affiliates for Washington risks. Captives affiliated with public institutions of higher education would be exempt from the premium tax.
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. This is the culmination of a battle over the past few years between Washington’s Office of Insurance (OIC) and reality. For whatever reason, the OIC has not liked that companies in Washington can set up captives to better manage the risks of their organizations. The OIC seems to have turned a blind eye on the benefits of captives to these organizations, and in turn to the State of Washington, and instead sniffly says “we don’t approve”.
For the companies and organizations 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. Washington could have instituted a self-procurement tax like several other states – instead, the OIC chose pride over prudence.
Thank you and I look forward to hearing from you.