Individual State Agency Fiscal Note — 6241 SB: Indep. procured insurance (Office of Insurance Commissioner)
Summary
An individual state agency fiscal note for bill number 6241 SB, titled Indep. procured insurance, prepared for the Office of Insurance Commissioner. It estimates operating expenditures of 469,450 for 2019-21 from the Insurance Commissioners Regulatory Account-State. The narrative states that Section 1(3) requires exempt commercial purchasers to file a report within 60 days after the insurance was bound or became effective, whichever is later, and that Section 4(1) subjects them to a $1,000 fine for each report not timely filed. Part V states that Section 5 allows the Office of Insurance Commissioner to adopt rules and that WAC 284-15-035 will need to be revised or eliminated.
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“Individual State Agency Fiscal Note — 6241 SB: Indep. procured insurance (Office of Insurance Commissioner).”
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Individual State Agency Fiscal Note
Bill Number: 6241 SB Title: Indep. procured insurance Agency: 160-Office of Insurance
Commissioner
Part I: Estimates
No Fiscal Impact
Estimated Cash Receipts to:
ACCOUNT FY 2020 FY 2021 2019-21 2021-23 2023-25
General Fund-State 001-1 1,480,000 1,480,000 90,258,000 76,186,000
Total $ 1,480,000 1,480,000 90,258,000 76,186,000
Estimated Operating Expenditures from:
FY 2020 FY 2021 2019-21 2021-23 2023-25
FTE Staff Years 0.0 3.2 1.6 1.4 1.4
Account
Insurance Commissioners Regulatory 0 469,450 469,450 424,196 408,990
Account-State 138-1
Total $ 0 469,450 469,450 424,196 408,990
Estimated Capital Budget Impact:
NONE
The cash receipts and expenditure estimates on this page represent the most likely fiscal impact. Factors impacting the precision of these estimates,
and alternate ranges (if appropriate), are explained in Part II.
Check applicable boxes and follow corresponding instructions:
If fiscal impact is greater than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete entire fiscal note
X
form Parts I-V.
If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete this page only (Part I).
Capital budget impact, complete Part IV.
X Requires new rule making, complete Part V.
Legislative Contact: Phone: Date: 01/23/2020
Agency Preparation: Scott Bird Phone: (360) 725-7169 Date: 01/24/2020
Agency Approval: Bryon Welch Phone: 360-725-7037 Date: 01/24/2020
OFM Review: Jason Brown Phone: (360) 902-0539 Date: 01/26/2020
Form FN (Rev 1/00) 156,617.00 Request # 20-54-1
FNS063 Individual State Agency Fiscal Note 1 Bill # 6241 SB
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
Briefly describe by section number, the significant provisions of the bill, and any related workload or policy assumptions, that have revenue or
expenditure impact on the responding agency.
Section 1(2) requires that, prior to independently procuring insurance in this state, a person must establish that
they qualify as an exempt commercial purchaser (ECP) by filing a form, in the format prescribed by the Office of
Insurance Commissioner (OIC), attesting that the person qualifies as an ECP and providing additional
information as required by the OIC.
Section 1(3) requires ECPs whose home state is WA state and who procure, continue, or renew insurance with an
unauthorized insurer, other than insurance lawfully procured through a surplus lines broker, to file a report with
the OIC, in a form prescribed by the OIC, within 60 days after the date the insurance was bound or the effective
date of the insurance, whichever is later.
Section 1(5) permits an ECP to only independently procure unauthorized insurance that is properly classified as
property insurance under RCW 48.11.040 or general casualty insurance under RCW 48.11.070.
Section 2 and 3 requires each ECP to file a statement of all independently procured insurance transacted during
the preceding calendar year and pay the associated insurance premium tax by March 1st of each year.
Section 4(1) subjects ECPs to a $1,000 fine for each report, as required by section 1(3), that is not timely filed
with the commissioner.
Section 4(2) requires ECPs to pay the penalties and interest provided in RW 48.14.060 if they fail to file the
annual statement or remit the tax provided by section 3 by the last day of the month in which the tax becomes
due.
Section 5 allows the office of insurance commissioner to adopt rules as necessary to implement this act.
II. B - Cash receipts Impact
Briefly describe and quantify the cash receipts impact of the legislation on the responding agency, identifying the cash receipts provisions by section
number and when appropriate the detail of the revenue sources. Briefly describe the factual basis of the assumptions and the method by which the
cash receipts impact is derived. Explain how workload assumptions translate into estimates. Distinguish between one time and ongoing functions.
INSURANCE PREMIUM TAXES:
Section 2 and 3, effective January 1, 2021, requires each exempt commercial purchaser (ECP) to file a statement
of all independently procured insurance transacted during the preceding calendar year and pay the associated
insurance premium tax by March 1st of each year. While the Office of Insurance Commissioner (OIC) does not
have data concerning the number of companies which may utilize independent procurement, the Department of
Revenue (DOR) for FY2019, has confirmed there were a total of 2,366 companies with gross income greater than
$50 million per year paying taxes to DOR. If the OIC takes just 25% of those companies (2,366 X 25%), we
estimate approximately 592 ECPs will directly procure insurance beginning in calendar year (CY) 2021. We
estimate an additional 35 (2,366 x 1.5%) ECPs in CY 2022, an addition 6 ECPs (2,366 x .25%) in CY 2023 and
then assume the number will hold steady at 633 every year thereafter. Illinois, a state that began levying tax
against entities like ECPs in 2015, reports an average of $3 million in premium volume per ECP. If we combine
OIC’s estimated number of ECPs with the $3 million average premium volume per year, we estimate the
following additional insurance premium tax revenue:
Indep. procured insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 156,617.00 Request # 20-54-1
FNS063 Individual State Agency Fiscal Note 2 Bill # 6241 SB
** Please note: WA’s insurance premium tax requires the following tax prepayments which may result in the
premium tax associated with a specific calendar year’s premium volume being different than the revenue
received in a fiscal year:
45% of the previous year’s tax liability – Due June 15
25% of the previous year’s tax liability – Due September 15
25% of the previous year’s tax liability – Due December 15th
Tax forms and tax payment “true-up” for the previous year – Due March 1
FY2021: N/A
FY2022: $51,504,000 ($1,776,000,000 premium volume in CY2021 (592 ECPs x $3 million) x 2% premium tax
= $35,520,000 PLUS 45% prepayment of $15,984,000)
FY2023: $38,565,000 (based on $1,881,000,000 of premium volume in CY2022 (627 ECPs x $3 million) x 2%
premium tax = $37,620,000)
FY2024: $38,142,000 (based on $1,899,000,000 of premium volume in CY2023 (633 ECPs x $3 million) x 2%
premium tax = $37,980,000)
FY2025 and after: $37,980,000 (based on $1,899,000,000 of premium volume in CY2024 and after (633 ECPs x
$3 million) x 2% premium tax = $37,980,000)
PENALTIES/INTEREST/FINES:
Section 4(1) subjects exempt commercial purchasers (ECPs) to a $1,000 fine for each report that is not timely
filed with the Office of Insurance Commissioner (OIC). Based on the OIC’s previous years’ experience with
report compliance on new filings, the OIC expects relatively low compliance with “timely filing” in the first year
(50%) with higher compliance (95% to 99%) in following years. Based on comparative 2019 data from Illinois, a
state that began levying tax against entities like ECPs in 2015, the OIC assumes each ECP will procure five
policies per year resulting in the following potential fines:
FY2021: $1,480,000 (5 policies x 592 ECPs = 2,960 policies x 50% late filing = 1,480 late filings x $1,000)
FY2022: $157,000 (5 policies x 627 ECPs = 3,135 policies x 5% late filing = 157 late filings x $1,000)
FY2023 and beyond: $32,000 (5 policies x 633 ECPs = 3,165 policies x 1% late filing = 32 late filings x
$1,000).
Section 4(2) requires ECPs to pay the penalties and interest provided in RW 48.14.060 if they fail to file the
annual statement or remit the tax provided by section 3 of this act by the last day of the month in which the tax
becomes due. For purposes of this fiscal note, it is assumed that all taxes will be remitted by the due date.
II. C - Expenditures
Briefly describe the agency expenditures necessary to implement this legislation (or savings resulting from this legislation), identifying by section
number the provisions of the legislation that result in the expenditures (or savings). Briefly describe the factual basis of the assumptions and the
method by which the expenditure impact is derived. Explain how workload assumptions translate into cost estimates. Distinguish between one time
and ongoing functions.
Assumptions: It is estimated that approximately 592 exempt commercial purchasers (ECPs) will transact
business in Washington in CY 2021, an additional 35 ECPs will transact business in CY 2022 and an additional 6
Indep. procured insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 156,617.00 Request # 20-54-1
FNS063 Individual State Agency Fiscal Note 3 Bill # 6241 SB
ECPs will transact business in CY 2023. For each year thereafter, we assume the number will hold steady at 633
ECMs. Based on Illinois’ 2019 data, a state that began levying tax against entities like ECPs in 2015, the OIC
assumes each ECP will procure five policies per year.
Section 1(2), effective January 1, 2021, requires that, prior to independently procuring insurance in this state, a
person must establish that they qualify as an exempt commercial purchaser (ECP) by filing a form, in the format
prescribed by the Office of Insurance Commissioner (OIC), attesting that the person qualifies as an ECP and
providing additional information as required by the OIC. It is expected to require approximately 30 minutes per
form, or a total of 296 hours (592 forms x 30 minutes) in FY2021, 18 hours (35 forms x 30 minutes) in FY2022,
and 3 hours (6 forms x 30 minutes) each year thereafter of a Functional Program Analyst 4 to review the forms
and send letters of registration to the ECPs. If the OIC discovers that a WA company is independently procuring
unauthorized insurance without filing a form, investigation will be necessary to determine whether the person
qualifies as an exempt commercial purchaser and whether the person’s home state is WA. If these two factors are
present, OIC will need to take enforcement action. It is expected to take significant resources to encourage
compliance. Each year, it is assumed there would be at least 15 investigations, requiring 150 hours of an
Investigator 3; 12 enforcement actions, requiring 372 hours of an Insurance Enforcement Specialist and 60 hours
of a Paralegal 2. We anticipate 3 hearings a year to address unauthorized activity, requiring 249 hours of an
Insurance Enforcement Specialist, 192 hours of a Paralegal 2, and 97 hours of a Presiding Officer.
Section 1(3) requires ECPs whose home state is WA state and who procure, continue, or renew insurance with an
unauthorized insurer, other than insurance lawfully procured through a surplus lines broker, to file a report with
the OIC, in a form prescribed by the OIC, within 60 days after the date the insurance was bound or the effective
date of the insurance, whichever is later. It is expected to require approximately 20 minutes per report, or a total
of 987 hours (592 ECPs x 5 reports x 20 minutes) in FY2021, 1,045 hours (627 ECPs x 5 reports x 20 minutes)
in FY2022, and 1,055 hours (633 ECPs x 5 reports x 20 minutes) each year thereafter of a Financial Examiner 4
to review the reports and, if necessary, communicate back and forth to clarifying provided information.
Section 2 and 3 requires each ECP to file a statement of all exempt commercial purchaser insurance transacted
during the preceding calendar year and pay the associated insurance premium tax by March 1st of each year.
Section 4(1) subjects ECPs to a $1,000 fine for each report, as required by section 1(3), that is not timely filed
with the commissioner. In FY 2021, it is expected that 50 percent of the reports will be submitted late requiring
493 hours (2,960 reports x 50%=1,480 late reports x 20 minutes) of a Financial Examiner 4 to prepare an
enforcement referral. In FY2022, late submittals are assumed to decrease to 5 percent requiring 52 hours (3,135
reports x 5%=157 late reports x 20 minutes) of a Financial Examiner 4. In FY2023 and thereafter, late submittals
are assumed to decrease to 1 percent requiring 11 hours (3,165 reports x 1%=32 late reports x 20 minutes) of a
Financial Examiner 4. Processing each referral for enforcement will require a total of 60 minutes per referral or
740 hours (1,480 referrals x 30 minutes) in FY2021, 79 hours (157 referrals x 30 minutes) in FY2022 and 16
hours (32 referrals x 30 minute) each year thereafter of both an Insurance Enforcement Specialist and a Paralegal
2.
Section 4(2) requires ECPs to pay the penalties and interest provided in RW 48.14.060 if they fail to file the
annual statement or remit the tax provided by section 3 by the last day of the month in which the tax becomes
due.
Sections 1(2), 2, 3, and 4(2) requires the (OIC) to make changes to its Information Technology (IT) systems to
enable ECPs to register, report premiums, and pay taxes as well as report and collect penalty fees for those who
Indep. procured insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 156,617.00 Request # 20-54-1
FNS063 Individual State Agency Fiscal Note 4 Bill # 6241 SB
are past due. The changes to IT systems would include a combination of system configuration changes and
software programming enhancements. The OIC’s IT staff will implement these changes in-house to ensure that
the system changes align with the existing IT infrastructure and technical approaches that OIC uses in its
applications and online e-commerce websites. The cost estimate for the system changes and new software
development is assumed to be a one-time cost and estimated at 503 hours over 3 months utilizing five IT staff.
The cost estimate to implement this bill is based on what it cost the OIC to recently build the fiscal tax screens in
ORCA, the agency’s new back-office system as well as enhancements to the existing SIMBA Online system.
Section 5 allows the OIC to adopt rules as necessary to implement this act. WAC 284-15-035 will need to be
either revised or eliminated as the current WAC conflicts with this bill and additional clarification associated
with rules associated with this new and alternative way to procure insurance will be required. This will require a
‘normal’ rulemaking process in FY2021.
Ongoing Costs:
Salary, benefits and associated costs for .09 FTE Investigator 3; .39 FTE Insurance Enforcement Specialist; .16
FTE Paralegal 2; .06 FTE Presiding Officer; and .65 FTE Financial Examiner 4.
Part III: Expenditure Detail
III. A - Operating Budget Expenditures
Account Account Title Type FY 2020 FY 2021 2019-21 2021-23 2023-25
138-1 Insurance State 0 469,450 469,450 424,196 408,990
Commissioners
Regulatory Account
Total $ 0 469,450 469,450 424,196 408,990
III. B - Expenditures by Object Or Purpose
FY 2020 FY 2021 2019-21 2021-23 2023-25
FTE Staff Years 3.2 1.6 1.4 1.4
A-Salaries and Wages 279,839 279,839 253,499 244,502
B-Employee Benefits 95,721 95,721 85,858 82,690
C-Professional Service Contracts
E-Goods and Other Services 93,890 93,890 84,839 81,798
G-Travel
J-Capital Outlays
M-Inter Agency/Fund Transfers
N-Grants, Benefits & Client Services
P-Debt Service
S-Interagency Reimbursements
T-Intra-Agency Reimbursements
9-
Total $ 0 469,450 469,450 424,196 408,990
Indep. procured insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 156,617.00 Request # 20-54-1
FNS063 Individual State Agency Fiscal Note 5 Bill # 6241 SB
III. C - Operating FTE Detail: List FTEs by classification and corresponding annual compensation. Totals need to agree with total FTEs in
Part I and Part IIIA
Job Classification Salary FY 2020 FY 2021 2019-21 2021-23 2023-25
Financial Examiner 4 99,816 0.9 0.5 0.7 0.7
Functional Program Analyst 4 76,128 0.2 0.1 0.0
Insurance Enforcement Specialist 87,108 0.8 0.4 0.4 0.4
Investigator 3 72,432 0.1 0.1 0.1 0.1
IT Applications Developer - Journey 94,068 0.1 0.1
IT Applications Developer - Senior 108,912 0.1 0.1
IT Architeture - Senior 114,360 0.0 0.0
IT Business Analyst - Senior 103,584 0.0 0.0
IT Data Management - Senior 106,308 0.0 0.0
Paralegal 2 68,892 0.6 0.3 0.2 0.2
Presiding Officer 97,620 0.1 0.0 0.1 0.1
Senior Policy Analyst 91,896 0.2 0.1
Total FTEs 3.2 1.6 1.4 1.4
III. D - Expenditures By Program (optional)
NONE
Part IV: Capital Budget Impact
IV. A - Capital Budget Expenditures
NONE
IV. B - Expenditures by Object Or Purpose
NONE
IV. C - Capital Budget Breakout
Identify acquisition and construction costs not reflected elsewhere on the fiscal note and describe potential financing methods
NONE
Part V: New Rule Making Required
Identify provisions of the measure that require the agency to adopt new administrative rules or repeal/revise existing rules.
Section 5 allows the OIC to adopt rules as necessary to implement this act. WAC 284-15-035 will need to be either revised
or eliminated as the current WAC conflicts with this bill and additional clarification associated with rules associated with
this new and alternative way to procure insurance will be required. This will require a ‘normal’ rulemaking process in
FY2021.
Indep. procured insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 156,617.00 Request # 20-54-1
FNS063 Individual State Agency Fiscal Note 6 Bill # 6241 SB
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