Fiscal Note - 5315 P S SB, Captive Insurance, Office of Insurance Commissioner (January 26, 2021)
Summary
Individual State Agency Fiscal Note for Bill Number 5315 P S SB, titled Captive insurance, from the Office of Insurance Commissioner, with agency preparation dated January 26, 2021. It describes Section 3 registration with a fee of $2,500, the Section 4 tax of 2% on premiums, and Section 6 rulemaking authority. The note uses data from a captive insurance study completed by Milliman in January 2021 and reflects only the medium range assumptions. Its medium estimate for the premium tax is $2,200,000 beginning FY2022, from $110,000,000 in premium volume per year at the 2% tax. It states that a normal rulemaking process is needed in FY2022.
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“Fiscal Note - 5315 P S SB, Captive Insurance, Office of Insurance Commissioner (January 26, 2021).”
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Individual State Agency Fiscal Note
Bill Number: 5315 P S SB Title: Captive insurance Agency: 160-Office of Insurance
S-0594.1/21 Commissioner
Part I: Estimates
No Fiscal Impact
Estimated Cash Receipts to:
ACCOUNT FY 2022 FY 2023 2021-23 2023-25 2025-27
General Fund-State 001-1 31,867,500 2,327,500 34,195,000 4,655,000 4,655,000
Total $ 31,867,500 2,327,500 34,195,000 4,655,000 4,655,000
Estimated Operating Expenditures from:
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 1.1 0.6 0.8 0.6 0.6
Account
Insurance Commissioners Regulatory 158,619 74,780 233,399 149,560 149,560
Account-State 138-1
Total $ 158,619 74,780 233,399 149,560 149,560
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: Kellee Gunn Phone: 786-7429 Date: 01/22/2021
Agency Preparation: Michael Walker Phone: 360-725-7036 Date: 01/26/2021
Agency Approval: Bryon Welch Phone: 360-725-7037 Date: 01/26/2021
OFM Review: Jason Brown Phone: (360) 742-7277 Date: 01/26/2021
Form FN (Rev 1/00) 163,582.00 Request # 21-25-1
FNS063 Individual State Agency Fiscal Note 1 Bill # 5315 P S SB S-0594.1/21
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 3(1) requires that within 120 days after the effective date of this section or, if later, within 120 days after
first issuing a policy that covers WA risks, an entity acting as an eligible captive insurer must register with the
Office of Insurance Commissioner (OIC).
Section 3(2) requires the OIC to approve an eligible captive insurer’s registration if the eligible captive insurer
has sufficiently demonstrated that its assets exceed its liabilities by at least $1 million, has the ability to pay its
debts as they come due, are in good standing in its jurisdiction of domicile, and the has paid a fee of $2,500.
Section 3(3) allows the Commissioner to request additional documentation and information if needed to show
that these requirements have been met.
Section 3(5) allows a registered captive insurer to renew its certificate of registration for successive periods of 12
months each if the registered captive insurer has sufficiently demonstrated that its assets exceed its liabilities by
at least $1 million, has the ability to pay its debts as they come due, are in good standing in its jurisdiction of
domicile, and has paid a renewal fee in an amount set by the OIC, not to exceed $2,500.
Section 4(1) requires registered eligible captive insurers to pay, on or before March 1st of each year, a 2% tax on
premiums for insurance directly procured by and provided to its parent or another affiliate for WA risks during
the preceding calendar year. Taxes collected must be deposited to the General Fund.
Sections 4(5) requires registered eligible captive insurers to pay the penalties and interest provided in RCW
48.14.060 if they fail to remit the tax provided by section 4(1) by the last day of the month in which the tax
becomes due. Fines collected must be deposited to the General Fund.
Sections 4(6) requires eligible captive insurers to pay taxes on premiums for any period after January 1, 2011, if
not previously remitted to the OIC and limits such taxes to an eligible captive insurer’s WA risks. Taxes due for
periods before July 1, 2021 are not subject to the penalties or interest provided in RCW 48.14.060.
Section 5 authorizes the OIC to use any of the powers established under Title 48 RCW to enforce the laws of this
state. An eligible captive insurer that violates any provision of this chapter will be subject to the fines and
penalties applicable to authorized insurers generally, including revocation, suspension, and refusal to renew
registration. An eligible captive insurer that fails to register under this act is acting as an unlawful, unauthorized
insurer and is subject to the fines and penalties applicable to unlawful, unauthorized insurers generally.
Section 6 allows the OIC 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.
Assumptions:
The Office of Insurance Commissioner (OIC) is using data derived from a contracted captive insurance study
completed by Milliman in January 2021. The captive insurance study reflects a range of low, medium and high
estimated numbers of eligible captive insurers and taxable premium volume. Although a range of low, medium,
Captive insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 163,582.00 Request # 21-25-1
FNS063 Individual State Agency Fiscal Note 2 Bill # 5315 P S SB S-0594.1/21
and high estimates will also be reflected in the narrative below for informational purposes, the fiscal note only
reflects the medium range assumptions.
REGISTRATION AND RENEWAL FEES:
Section 3(2) requires the OIC to approve an eligible captive insurer’s registration if the eligible captive insurer
has sufficiently demonstrated that its assets exceed its liabilities by at least $1 million, has the ability to pay its
debts as they come due, are in good standing in its jurisdiction of domicile, and has paid a fee of $2,500. Section
3(5) allows a registered captive insurer to renew its certificate of registration for successive periods of 12 months
each if the registered captive insurer has sufficiently demonstrated that its assets exceed its liabilities by at least
$1 million, has the ability to pay its debts as they come due, are in good standing in its jurisdiction of domicile,
and has paid a renewal fee in an amount set by the OIC, not to exceed $2,500.
Low Estimates:
FY2022: $90,000 (36 registrations x $2,500)
FY2023 and after: $90,000 (36 registration renewals x $2,500)
Medium Estimates:
FY2022: $127,500 (51 registrations x $2,500)
FY2023 and after: $127,500 (51 registration renewals x $2,500)
High Estimates:
FY2022: $205,000 (82 registrations x $2,500)
FY2023 and after: $205,000 (82 registration renewals x $2,500)
INSURANCE PREMIUM TAXES:
Section 4(1) requires registered eligible captive insurers to pay, on or before March 1st of each year, a 2% tax on
premiums for insurance directly procured by and provided to its parent or another affiliate for WA risks during
the preceding calendar year. Taxes collected must be deposited to the General Fund.
Low Estimates:
Beginning FY2022: $2,000,000 ($100,000,000 premium volume per year x 2% tax)
Medium Estimates:
Beginning FY2022: $2,200,000 ($110,000,000 premium volume per year x 2% tax)
High Estimates:
Beginning FY2022: $2,600,000 ($130,000,000 premium volume per year x 2% tax)
PENALTIES/INTEREST/FINES:
Sections 4(5) requires registered eligible captive insurers to pay the penalties and interest provided in RCW
48.14.060 if they fail to remit the tax provided by section 4(1) 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.
BACK TAXES:
Captive insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 163,582.00 Request # 21-25-1
FNS063 Individual State Agency Fiscal Note 3 Bill # 5315 P S SB S-0594.1/21
Sections 4(6) requires eligible captive insurers to pay taxes on premiums for any period after January 1, 2011, if
not previously remitted to the OIC and limits such taxes to an eligible captive insurer’s WA risks. Taxes due for
periods before July 1, 2021 are not subject to the penalties or interest provided in RCW 48.14.060.
FY2022 (a one-time collection of back premium taxes): $29,540,000 ($1,477,000,000 premium volume for tax
years 2011 - 2020 x 2% tax)
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: Because of the need to adopt rules and modify IT systems to accommodate registration and tax
and fee collection, it is assumed that entities will be required to register and start reporting beginning in January
2022. Estimates for the number of hours required by the various employee classifications listed below are based
on past experience in reviewing and processing similar type applications in terms of complexity of regulatory
requirements. For the purposes of evaluating expenditures, we will use the medium number of captives to
estimate our potential expenditures.
Section 3(1) and 3(5) requires eligible captive insurers to register and annually renew the registrations with the
OIC and pay the registration and renewal fees. It is expected to require approximately 12 hours per
registration/renewal, or a total of 612 hours (51 registrations x 12 hours) beginning in FY2022 of a Functional
Program Analyst 4 to review the registrations to determine if the applicants meet the financial requirements, seek
additional information and/or clarification of submitted documentation, finalize and document approval decision,
and prepare certificates of registration.
Section 4(1) requires registered eligible captive insurers to pay, on or before March 1st of each year, a 2% tax on
premiums for insurance directly procured by and provided to its parent or another affiliate for WA risks during
the preceding calendar year.
Sections 4(5) requires registered eligible captive insurers to pay the penalties and interest provided in RCW
48.14.060 if they fail to remit the tax provided by section 4(1) by the last day of the month in which the tax
becomes due.
Sections 4(6) requires eligible captive insurers to pay taxes on premiums for any period after January 1, 2011, if
not previously remitted to the OIC and limits such taxes to an eligible captive insurer’s WA risks. Taxes due for
periods before July 1, 2021 are not subject to the penalties or interest provided in RCW 48.14.060.
Sections 3 and 4 requires the OIC to make changes to its Information Technology (IT) systems to enable eligible
captive insurers to register and renew, report premiums, and pay taxes as well as report and collect penalty fees
for those who 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.
Captive insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 163,582.00 Request # 21-25-1
FNS063 Individual State Agency Fiscal Note 4 Bill # 5315 P S SB S-0594.1/21
Section 5 authorizes the OIC to use any of the powers established under Title 48 RCW to enforce the laws of this
state. An eligible captive insurer that violates any provision of this chapter will be subject to the fines and
penalties applicable to authorized insurers generally, including revocation, suspension, and refusal to renew
registration. An eligible captive insurer that fails to register under this act is acting as an unlawful, unauthorized
insurer and is subject to the fines and penalties applicable to unlawful, unauthorized insurers generally.
Beginning in FY2022, the OIC anticipates 5 enforcement cases a year, with one case per year requiring an
administrative hearing, to address this new captive framework, including but not limited to, failure to register,
failure to remit back premium taxes and other violations related to revocation and/or suspension. Investigations
generally take anywhere between 25-80 hours per case and enforcement actions require the equivalent of
approximately 25 hours per action . For purposes of this fiscal note, it is assumed that investigations will require
an average of 35 hours per case, or a total of 175 hours (5 cases x 35 hours) per year of an Investigator 3 and
enforcement actions will require an average of 25 hours per enforcement action, or a total of 125 hours (5 cases x
25 hours) per year of an Insurance Enforcement Specialist.
Section 6 allows the OIC to adopt rules as necessary to implement this act. We anticipate this will be ‘normal’
rule making.
Ongoing Costs:
Salary, benefits and associated costs for .37 FTE Functional Program Analyst 4; .11 FTE Investigator 3; and .08
FTE Insurance Enforcement Specialist effective FY2022.
Part III: Expenditure Detail
III. A - Operating Budget Expenditures
Account Account Title Type FY 2022 FY 2023 2021-23 2023-25 2025-27
138-1 Insurance State 158,619 74,780 233,399 149,560 149,560
Commissioners
Regulatory Account
Total $ 158,619 74,780 233,399 149,560 149,560
III. B - Expenditures by Object Or Purpose
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 1.1 0.6 0.8 0.6 0.6
A-Salaries and Wages 94,408 43,949 138,357 87,898 87,898
B-Employee Benefits 32,487 15,875 48,362 31,750 31,750
C-Professional Service Contracts
E-Goods and Other Services 31,724 14,956 46,680 29,912 29,912
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 $ 158,619 74,780 233,399 149,560 149,560
Captive insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 163,582.00 Request # 21-25-1
FNS063 Individual State Agency Fiscal Note 5 Bill # 5315 P S SB S-0594.1/21
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 2022 FY 2023 2021-23 2023-25 2025-27
Functional Program Analyst 4 78,408 0.4 0.4 0.4 0.4 0.4
Insurance Enforcement Specialist 87,120 0.1 0.1 0.1 0.1 0.1
Investigator 3 72,432 0.1 0.1 0.1 0.1 0.1
IT Applications Developer - Journey 96,888 0.1 0.1
IT Applications Developer - Senior 112,176 0.1 0.1
IT Architecture - Senior 112,104 0.0 0.0
IT Business Analyst - Senior 112,104 0.0 0.0
IT Data Management - Senior 109,500 0.0 0.0
Senior Policy Analyst 91,896 0.2 0.1
Total FTEs 1.1 0.6 0.8 0.6 0.6
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
IV. D - Capital FTE Detail: List FTEs by classification and corresponding annual compensation. Totals need to agree with total FTEs in
Part IVB
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 6 allows the OIC to adopt rules as necessary to implement this act. OIC anticipates the need to provide process
clarification as well as guidance on what allocation methods are “reasonable” under sections 4(2). This will require a
‘normal’ rulemaking process in FY2022.
Captive insurance 160-Office of Insurance Commissioner
Form FN (Rev 1/00) 163,582.00 Request # 21-25-1
FNS063 Individual State Agency Fiscal Note 6 Bill # 5315 P S SB S-0594.1/21
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