Authorizing and regulating the use of captive insurance in Washington
(Second Substitute SB 5315 "Concerning captive insurance")
At the request of Legislators, the OIC and the state Department of Revenue contracted with Seattle-based Milliman, Inc., to better understand the captive insurance market in Washington. Captive insurance companies are formed to serve the insurance and risk management needs of the parent organization, and captive insurance covers only risks faced by that parent organization and its affiliates. As a result of the captive study, the OIC entered into a collaborative effort with a group of Washington-based businesses using captive insurance companies to help develop a framework that will enable the use of captive insurance in a regulated and authorized manner.
A Coalition of Washington employers and the OIC are jointly supporting legislation that would specifically authorize Washington-based entities to utilize captive insurance. This new framework provides regulatory authority and consumer protections and the opportunity to improve the business climate for Washington employers while simultaneously generating needed revenue for the state budget.
The prime sponsor of Second Substitute SB 5315 is Sen. Mullet.
- Second Substitute SB 5315 bill history (leg.wa.gov)
- Second Substitute SB status: The bill was signed by the Governor on May 12, 2021 and is effective immediately.
Prohibiting the use of credit scoring in insurance (SB 5010 "Prohibiting the use of credit scores to determine rates for personal lines of insurance")
The Office of the Insurance Commissioner is requesting legislation to ban the insurance industry’s use of credit scoring in setting premiums for auto, homeowner, renter and boat insurance. The reason for this change in state law is simple: The use of credit-based insurance scores has historically and disproportionately penalized communities of color and low-income communities through inequities embedded in our credit system.
Ample studies indicate that low-income people in Washington state are more likely to struggle with their credit and pay higher insurance premiums for reasons that have nothing to do with their insurance risk. Data indicates that communities of color are disproportionally represented in low-income demographics and saddled with higher insurance premiums.
A 2015 report by the Consumer Federation of America showed that, on average, drivers with a good credit score paid $214 more per year than drivers with the best credit score, without factoring in their driving record. The study also found that in Washington state, drivers with excellent credit and a conviction for driving under the influence (DUI) paid $847 less in premiums than a driver with a clean driving record and poor credit.
In recent months, the insurance industry voiced overwhelming support for action to promote racial and economic justice. By supporting this legislation, the industry has the opportunity to put that support into action to end the discriminatory practice of using credit scoring to set insurance premiums.
The prime sponsor of SB 5010 is Sen. Das.
SB status: The Senate Rules Committee placed the substitute bill in the X-file on March 17, 2021.
Updating the definition of insurance adjusters
(Substitute HB 1037 "Concerning insurance adjusters")
The definition of adjuster in RCW 48.17.010(1) may include non-insurance professionals who also provide important information and services to insurance companies or policyholders during the claim process.
The OIC is recommending amending state law:
- To allow insurance professionals who adjust property and casualty insurance claims to continue to require adjuster licensure. The amendment will clarify that non-insurance professionals who only provide damage evaluation on insurance claims are not required to be licensed as an adjuster.
- To clarify that an appraiser or umpire functioning under the contractual appraisal clause in the policy is not deemed an adjuster for the purposes of this chapter. This clause has caused confusion and clarifying it will aid the OIC’s regulatory efforts.
- To require continuing education for adjusters. Doing so benefits insurance consumers, provides interstate reciprocity benefits for adjuster licensees and mirrors practices in other states.
- To allow emergency nonresident independent adjusters to operate in Washington state only after the governor has declared an emergency and only if they have already registered with the OIC. This practice is in effect in many states and follows the state licensing guidelines established by the National Association of Insurance Commissioners.
The prime sponsor of Substitute HB 1037 is Rep. Kirby.
- Substitute HB 1037 bill history (leg.wa.gov)
Substitute HB status: The bill was signed by the Governor on April 14, 2021. The bill will become effective on July 25, 2021.
Improving the reliability of reinsurance
(SB 5048 "Concerning reinsurance agreements")
The National Association of Insurance Commissioners (NAIC) recently adopted the Credit for Reinsurance model law that provides guidance to reinsurers about the application of the credit for reinsurance (a statutory accounting principal) as well as expands the requirements to license non-U.S. insurers. In order to maintain national accreditation and avoid federal pre-emption to license non-U.S. insurers, the OIC must pass the model law before September 2022.
A credit for reinsurance is a statutory accounting procedure that permits a ceding company (the company giving the credit away to another company) to treat amounts due from reinsurers as assets or reductions from liability based on the status of the reinsurer. Reinsurance credit procedures allow an insurance company to treat money owed by reinsurers for covered losses as assets.
The prime sponsor of SB 5048 is Sen. Mullet.
- SB 5048 bill history (leg.wa.gov)
SB status: The bill was signed by the Governor on April 26, 2021. The bill will become effective on July 25, 2021.