Preserve Washington Employers’ Ability to Protect Their Customers, Employees and Shareholders

Summary

An advocacy paper from an employers coalition, titled Preserve Washington Employers' Ability to Protect Their Customers, Employees and Shareholders, with Problem, Background and Solution sections. It states that Washington law does not define the legal status of captive insurers apart from commercial insurers, and that the Office of the Insurance Commissioner (OIC) has begun applying commercial insurance law and premium taxation to them. The paper opposes including captive insurers in a proposed self-procurement tax, arguing it could create double taxation and reduce their use. It asks lawmakers to distinguish captive insurers from commercial insurers in statute for regulatory and tax purposes. It states that coalition members are willing to pay a reasonable fee or tax based on their Washington risks.

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Full text

sep Denhy Eriason

Preserve Washington Employers’ Ability

to Protect Their Customers, Employees

and Shareholders

PROBLEM

Current Washington law does not specifically
define the legal status of captive insurers, as
distinct from commercial insurers. This creates
regulatory uncertainty.

In the absence of appropriately clear law, the
Office of the Insurance Commissioner (OIC) has
begun to apply existing commercial insurance law
and premium taxation on the captive insurance
subsidiaries of Washington-based corporations.
Premium taxes are intended to fund state
oversight of insurance companies that offer
policies to the general public in order to protect
consumers and ensure that those insurers can
deliver on their promises. But captive insurers
don't offer policies to the general public, and
the state doesn't need to regulate a transaction
between a company and its own subsidiary.

In trying to address this lack of clear legal
authority, the OIC now is asking lawmakers

to impose a new “self-procurement” tax on
companies that buy insurance directly and to
include captive insurers within the scope of that
bill. Doing so would ignore the clear differences
between captive insurers and commercial insurers.

Imposing a new tax on out-of-state captive
insurers could create an incidence of double
taxation for Washington-based employers to the
extent that their captive insurance subsidiaries
are already subject to applicable premium or
similar taxes where those captive insurers are
actually located.

The OIC’s imposition of premium taxes on captive
insurers has resulted in significant reductions

in their usage by Washington corporations. As

a result, rather than enhancing protection for
individuals, the OIC tax proposals would create
new risks because companies will find it more
difficult - and sometimes prohibitively expensive
- to utilize captive insurers in protecting their
customers, employees and shareholders.

Without action this legislative session to
exclude captive insurers from the scope of new
OIC tax legislation, Washington corporations in
all likelihood will no longer be able to use captive
insurers as they seek to manage their risks
prudently.

Responsible
= Employers
Coalition

BACKGROUND

Captive insurers are used by Washington corporations

as a prudent risk management strategy to protect their
customers, employees and shareholders. Captive insurers
do not publicly offer policies to or collect premiums from
individuals or other businesses. They exist to provide
coverage for their parent corporation and affiliates. As
such, the insurer and the insured are one and the same.

Captive insurers provide protection against both
everyday risks, such as consumer claims and workers’
compensation claims, and extraordinary risks, such as
natural disasters and terrorist attacks.

Captive insurers strengthen protections for customers,
employees and shareholders. Because the parent
corporation actually sets money aside to cover potential
claims rather than simply making an accounting entry
to reflect that potential cost, the captive insurer ensures
that the money will be there if it's ever needed.

Many of the risks that captive insurers protect against
are risks for which regular commercial insurance policies
aren't available or would be prohibitively expensive to
purchase, or that have huge deductibles.

SOLUTION

Enact new state legislation recognizing the important
role that captive insurers play in providing protections
for claims such as workers’ compensation.

Clearly distinguish in statue between “traditional”
commercial insurance providers and captive insurers,
whose exclusive purpose is to insure the risks of a
parent or affiliated company, for both regulatory and
tax purposes.

Ensure that taxation does not become a barrier to the
use of captive insurers as a prudent risk management
strategy by Washington corporation

Coalition members are willing to pay a reasonable fee or
tax based on their Washington risks in order to continue
operating prudently.

File and source

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2020-01-21_a26305_d209789_responsible-employers-coalition-captive-insurance-handout.pdf

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117,701 bytes

SHA-256

ea83f162cd0a1ab9b052196dbdf0b41723f0a03ae1b7fbec35c615cebd788025

Our copy

2020-01-21_a26305_d209789_responsible-employers-coalition-captive-insurance-handout.pdf

Original

app.leg.wa.gov