Washington Insurance Commissioner Probing Unpaid Insurance Taxes

Washington Insurance Commissioner Mike Kreidler has begun a study to determine how many organizations in Washington are not paying insurance premium tax as required under state law.

The study began with an initial survey sent to about 5,000 businesses and other organizations in Washington asking if they use a captive insurance company.

Currently, captive insurers are not authorized under Washington state law. Additionally, companies using them are not paying a 2% premium tax on the insurance they buy.

Kreidler last year ordered insurers Olympic Casualty Insurance Co. and ASA Assurance to stop insuring risk in Washington for their parent companies, Starbucks and Alaska Air Group. A year earlier, he fined an Alaska Air captive $2.5 million, and has also hit a Costco captive with a fine.

Tax revenue from insurance companies doing business in Washington goes to the state general fund to pay for various public programs.

Kreidler’s office contracted with Washington-based Milliman, Inc., to conduct the survey and study. The information gathered will not identify organizations failing to pay the premium tax but will show an overall projected amount owed.

The state Department of Revenue is assisting with the survey. Kreidler’s office will report results of the study to the Legislature later this year.

Currently, Washington 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. Kreidler last year proposed legislation to authorize captive insurance in Washington and to collect the 2% premium tax owed.

Kreidler set up a self-reporting plan for companies in December 2018 that resulted in 16 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.

In an effort to understand the magnitude of the amount of unpaid tax, Kreidler suspended enforcement actions against captive insurers, pending results of the survey and study.