Effective Date of Rule: Thirty-one days after filing.
Purpose: This rule makes clear and beyond question that the separate premium account may not be used as a personal asset by licensed producers and surplus line brokers and that premium taxes must be deposited into the account and cannot be withdrawn from the account, except for payment to the state or refund of unearned taxes.
Citation of Existing Rules Affected by this Order: Amending WAC 284-12-080.
Statutory Authority for Adoption: RCW 48.02.060 and 48.17.005.
Other Authority: RCW 48.15.180, 48.17.480, and 48.17.600.
Adopted under notice filed as WSR 12-11-127 on May 23, 2012.
A final cost-benefit analysis is available by contacting Jim Thompkins, P.O. Box 40258, Olympia, WA 98504-0258, phone (360) 725-7036, fax (360) 586-3109, e-mail firstname.lastname@example.org.
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.
Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 1, Repealed 0.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.
Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 1, Repealed 0.
Date Adopted: July 16, 2012.
AMENDATORY SECTION(Amending Matter No. R 2010-09, filed 12/22/10, effective 1/22/11)
WAC 284-12-080 Requirements for separate accounts. (1) The purpose of this section is to effectuate RCW 48.15.180, 48.17.600 and 48.17.480 with respect to the separation and accounting of premium funds by insurance producers, title insurance agents and surplus line brokers, collectively referred to in this section as "producers." Pursuant to RCW 48.30.010, the commissioner has found and hereby defines it to be an unfair practice for any producer, except as allowed by statute, to conduct insurance business without complying with the requirements of RCW 48.15.180, 48.17.600 and this section.
(2) All funds representing premiums as defined in RCW 48.18.170, which includes premium taxes and commissions, and
return premiums received on Washington business by a producer
in his or her fiduciary capacity on or after January 1, 1987,
shall)) must be deposited in one or more identifiable
separate accounts which may be interest bearing.
(a) A producer ((
may)) must not deposit (( no)) funds
other than premiums as defined in RCW 48.18.170, which
includes premium taxes and commissions and return premiums to
the separate account except as follows:
(i) Funds reasonably sufficient to pay bank charges;
(ii) Funds a producer may deem prudent for advancing
premiums, or establishing reserves for the paying of return
(iii) Funds for contingencies as may arise in the business of receiving and transmitting premiums or return premiums; and
(iv) Fees paid by insureds as permitted under RCW 48.17.270(2).
(b) A producer may commingle Washington premiums as
defined in RCW 48.18.170, which includes premium taxes and
commissions, and return premiums with those produced in other
but)) provided adequate records are maintained to
identify the amounts for Washington business. There (( shall))
must be no commingling of any funds (( which would)) not (( be))
permitted by this section.
(3)(a) The separate account funds ((
may)) must be:
(i) Deposited in a checking account, demand account, or a
savings account in a bank, national banking association,
savings and loan association, mutual savings bank, stock
savings bank, credit union, or trust company located in the
state of Washington. ((
Such an)) The account must be insured
by an entity of the federal government; or
(ii) Invested in United States government bonds and
treasury certificates or other obligations for which the full
faith and credit of the United States government is pledged
for payment of principal and interest, and repurchase
agreements collateralized by securities issued by the United
, and bankers acceptances)). Insurers may,
of course, restrict investments of separate account funds by
(b) A nonresident licensee, or a resident producer with affiliated operations under common ownership in two or more states, may utilize comparable accounts in another state provided such accounts otherwise meet the requirements of RCW 48.15.180, 48.17.600, 48.17.480 and this rule, and are accessible to the commissioner for purposes of examination or audit at the expense of the producer.
(4) Disbursements or withdrawals from a separate account
shall)) must only be made for the following purposes
(( only)), and in the manner stated:
(a) For charges imposed by a bank or other financial institution for operation of the separate account;
(b) For payments of premiums, directly to insurers or other producers entitled thereto;
(c) For payments of return premiums, which includes premium taxes, directly to the insureds or other persons entitled thereto;
(d) For payments of earned commissions and other funds
belonging to the separate account's producer, directly to
another account maintained by such producer as an operating or
business account, but only to the extent that the premium
funds for the policy or policies have actually been deposited
into the separate premium account; ((
(e) For transfer of fiduciary funds, directly to another separate premium account which meets the requirements of this section;
(f) For payment of surplus line premium taxes to the state; and
(g) For payment of earned producer fees, but only to the extent that the fees were originally deposited in the separate premium account.
The entire premium received (including a surplus
lines premium tax if paid by the insured) must be deposited
into the separate account. Such)) The funds (( shall))
deposited in the separate premium account must be paid
promptly to the insurer or to another producer entitled
thereto, in accordance with the terms of any applicable
agreement between the parties.
(b) Return premiums received by a producer and the
producer's share of any premiums required to be refunded, must
be deposited promptly to the separate account. ((
funds (( shall)) must be paid promptly to the insured or person
Where)) When a producer receives a premium
payment in the form of an instrument, such as a check, which
is made payable to an insurer, general agent or surplus line
broker, the producer may forward (( such)) the instrument
directly to the payee if that can be done without endorsement
or alteration. In (( such a)) this case, the producer's
separate account is not involved because the producer has not
"received" any funds.
(b) If the producer receives a premium payment in the
form of cash or an instrument requiring endorsement by the
such)) the premium must be deposited into the
producer's separate account, unless the insurer entitled to
such funds has established other procedures by written
direction to a producer who is its appointed agent, which
(i) Recognize that ((
such agent)) the producer is
receiving premiums directly on behalf of the insurer; and
(ii) Direct the producer to give adequate receipts on behalf of the insurer; and
(iii) Require deposit of the proceeds into the insurer's own account or elsewhere as permitted by the insurer's direction.
Thus, for example, an insurer may utilize the services of
a licensed insurance producer, acting as a "captive agent," in
the sale of its insurance and in the operation of its places
of business, and directly receive payments intended for it
such)) the payments being deposited into and
accounted for through the licensed insurance producer's
separate account. In (( such)) these cases, for purposes of
this rule, the insurer, as distinguished from the insurance
producer, is actually "receiving" the funds and is immediately
(c) When a producer receives premiums ((
in the capacity
of)) as a surplus line broker, licensed (( pursuant to)) under
chapter 48.15 RCW, after a binder or other written evidence of
insurance has been issued to the insured, subject to the
express written direction of the insurer involved, (( such))
the premiums, except premium taxes, may be removed from the
(7) The commissioner recognizes the practical problems of accounting for the small amounts of interest involved spread over a large number of insurers and insureds. Therefore, absent any agreement between the producer and the insured or insurer to the contrary, interest earned on the deposits held in the separate account may be retained by the producer and used to offset bank charges, establish reserves, pay return premiums, or for any of the purposes listed in subsection (2) of this section, or the interest may be removed to the operating account.
(8) A producer ((
shall)) must establish and maintain
records and an appropriate accounting system for all premiums
(( and)) as defined in RCW 48.18.170, which includes premium
taxes and commissions, return premiums, and fees received by
the producer, and (( shall)) must make (( such)) the records
available for inspection by the commissioner during regular
business hours upon demand during the five years immediately
after the date of the transaction.
(9) The accounting system used must effectively isolate
the separate account from any operating accounts and segment
or indentify all Washington business from that of other
states. All recordkeeping systems, whether manual or
electronic must provide an audit trail so that details
underlying the summary data, such as invoices, checks, and
statements, may be identified and made available on request. ((
Such a)) The system must provide the means to trace any
transaction back to its original source or forward to final
entry, (( such)) as is accomplished by a conventional
double-entry bookkeeping system. When automatic data
processing systems are used, a description of the system must
be available for review by the commissioner. A balance
forward system (as in an ordinary checking account) is not
(10)(a) A producer that is a business entity may utilize
one separate account for the funds received by its affiliated
persons operating under its license, and ((
affiliated persons may deposit the funds they receive in
(( such)) this capacity directly into the separate account of
their firm or corporation.
(b) Funds received by an insurance producer who is employed by and offices with another insurance producer may be deposited into and accounted for through the separate account of the employing insurance producer. This provision does not, however, authorize the insurance producer employee to represent an insurer as to which he or she has no appointment.
(11) Premium taxes deposited to the separate premium account are held in trust for the state and must be maintained in the account until paid to the state.
(12) The separate premium account is a fiduciary account and not the personal asset or account of the producer. A producer must not make withdrawals from the account except as provided in this section. The separate premium account must not be encumbered in any manner nor be pledged as collateral for a loan.
(13) For the purposes of this section, a commission is earned no earlier than when the policy is bound or effective.
[Statutory Authority: RCW 48.02.060 (3)(a) and 48.17.010(5). 11-01-159 (Matter No. R 2010-09), § 284-12-080, filed 12/22/10, effective 1/22/11. Statutory Authority: RCW 48.02.060, 48.30.010, 48.17.480 and 48.17.600. 90-04-042 (Order R 90-2), § 284-12-080, filed 1/31/90, effective 3/3/90. Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010(2). 88-17-117 (Order R 88-8), § 284-12-080, filed 8/24/88; 87-03-055 (Order R 87-1), § 284-12-080, filed 1/21/87.]