May 12, 2021
OLYMPIA, Wash. – A bill to provide a framework to captive insurers doing business in Washington state became law today after Gov. Jay Inslee signed the legislation. Second Substitute SB 5315 (leg.wa.gov) was requested by Insurance Commissioner Mike Kreidler and sponsored by Sen. Mark Mullet, D-Issaquah.
The bill requires that captives operating in Washington state must:
- Register with Kreidler’s office.
- Pay a registration fee of $2,500.
- Pay an annual 2% premium tax on insurance by March 1 every year, starting in 2022.
An independent study commissioned by Kreidler’s office estimated that the revenue generated will be $2.5 million per year and that captives will owe more than $29 million in past premium taxes, due July 1, 2021.
“This is an important step to allow companies to continue utilizing 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,” said Kreidler. “Moreover, 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.”
Captive insurance companies are formed to serve the insurance and risk management needs of the parent organization and its affiliates, and no other interests. Captive insurance can cover major risks, such as terrorist attacks or natural disasters, where commercial insurance is unavailable or prohibitively expensive.
Washington-based companies, like their peers elsewhere, have used captive insurance for years. Because Washington is not one of the 37 states that authorizes the formation of captive insurers, these subsidiaries are formed, or domiciled, in other states. Kreidler set up a self-reporting plan for companies in December 2018 that resulted in some businesses reporting their use of this arrangement. This led to the initial payment of about $4 million in previously unpaid premium tax, fines and interest, from captive insurers for Alaska Air Group, Starbucks, Costco and Microsoft.
A coalition of Washington corporations and Kriedler jointly supported the legislation to specifically authorize Washington-based entities to use captive insurance.
This new framework provides regulatory authority, consumer protections and the opportunity to improve the business climate for Washington employers while simultaneously generating additional revenue for the state budget.
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.