The General Assembly appears poised to adopt legislation that will provide tax incentives for captive insurance companies – allowing Rhode Island to compete for a sector of the insurance industry now dominated by Vermont.
A captive insurance company has one line of insurance – that being the business of its parent. It is a type of self insurance. Rhode Island currently has one such insurance company, operated by Fleet.
By comparison, Vermont has 400.
Roger Messier, president of Butler & Messier Inc., a Pawtucket-based insurance company, explains that captive insurance companies are often formed by industrial or finance companies or groups with special insurance needs, such as physicians. The U.S. Congress, said Messier, passed a law paving the way for captive insurance companies, after hearing from so many organizations that were having trouble finding insurance companies to insure them.
”Congress basically said; ‘If you can do a better job, go ahead.’ That started a big boom,” said Messier.
Once Congress gave the green light, Vermont sped to the forefront of the captive insurance market. The Green Mountain State passed legislation – and the captive insurance companies came running.
”Vermont is really the leader in the country,” said Messier. “Montpelier is the capital of captive insurance companies. And they’ve had it all to themselves for years.”
Rhode Island lawmakers are hoping to change all that.
Sen. William V. Irons, Sen. Majority Leader Paul Kelly, Sen. William Enos, all Democrats, and Sen. David Bates, a Republican, co-sponsor legislation that drops to a fraction of one percent, the tax that captive insurance companies would be asked to pay off their premiums. All insurance companies pay taxes based on the premiums they write. Supporters of the legislation expect that the final version of the bill will put that figure at slightly under the rate set by Vermont.
Irons, of East Providence, said efforts to lure the captive insurance industry go along with efforts on the part of the General Assembly and the Rhode Island Economic Development Corporation to establish a competitive environment for financial services companies. Fidelity Investments, said Irons, was a huge win for the state. But it is also only the beginning, he said.
”In Vermont the captives generate in the neighborhood of $9 million in premium tax revenues each year,” said Irons.
Bates, of Barrington, believes that tax breaks for captive insurance companies is a worthwhile investment.
”We’re trying to get these companies into the state,” Bates said. “And by cutting the taxes, we’re really not losing anything because there isn’t anything here now. Anyone we bring into the state is a gain.”
Alfonso Mastrostefano, superintendent of insurance at the state Department of Business Regulation, said that Vermont had put in place several tax packages as part of a concerted effort to lure the captive insurance business. He said such companies face the same regulatory standards as other insurers.
As of the Providence Business News deadline, the bill had been passed by the Senate Corporations Committee and was on the way to the full Senate.
Other business related legislation that is expected to spark debate at the General Assembly in the coming weeks:
Another look at Sunday and holiday work laws as they relate to manufacturers.
The possible restructuring of the state Department of Environmental Management and the impact such a restructuring could have on the business community.
The issue of biweekly pay for hourly workers — Rhode Island is the only state in the country to mandate that hourly workers get paid on a weekly basis.
Further reforms to the unemployment insurance and workers’ compensation systems.
Personal income tax reform and reductions in the tangible personal property tax.
Various health-care related bills.
