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Members of the American Insurance Association (AIA) are meeting with Steven Green, deputy commissioner chief counsel for the California Department of Insurance (CDI), at 1:30 p.m. today to discuss the Department’s recent announcement that workers’ compensation deductibles are now taxable as premium payments.

Mark Webb, AIA western region, told adjustercom.com, “This is an interpretation of a statute which results in a new regulation. A regulator cannot do that without following administrative procedure by gathering public opinion and then going to the Legislature.”

That is the argument Webb plans to bring to the table today, but he does not expect the CDI to change its position because of the meeting. “Given their rapid enforcement timeframe I’d be surprised if anything changed. They must be confident in their interpretation of the statute to have made this announcement.”

The CDI announced Feb. 28 that insurers with deductible policies must treat deductible payments as premiums and therefore pay taxes on those amounts from here on out. Back taxes will also be collected on deductibles paid since 1997. Insurers have until April 1 to pay the taxes for 1997.

Webb is concerned about the effect this kind of financial blow could have on the California insurance industry. “The sobering fact is that this equals at least $100 million in back taxes and significantly more going forward,” said Webb. “Companies, by and large, are mystified by this action. For years we have been asking the department of insurance to help with the workers’ compensation industry solvency and now they hit us with more taxes. It’s almost surreal.”

Webb finds the timing of the Department’s decision incredible. “In 1995, Chuck Quackenbush told the industry deductibles were not premiums. Now, the [CDI] met amongst themselves and decided it was and said ‘It should have been from day one, so you owe back taxes too.’”

Scott Edelen, CDI’s deputy insurance commissioner, communications, told adjustercom.com, that the State made an oversight by not calling the deductibles taxable until now, but that “CDI will continue to monitor the financial solvency and stability of the marketplace. Coupled with that responsibility is also the responsibility to enforce the revenue laws of the State.”