As insurance market wavers, micro-captives offer lifeline for US small businesses

Peter Dawson (pictured), chief executive of Dawson LLC and adviser to the 831(b) Institute, points out how micro-captives can help small businesses in the US.

Through the most challenging economic times, the United States has displayed resiliency in navigating economic crises. The US government’s fiscal strategy has provided effective responses to even the most catastrophic financial challenges. This has ensured government operations have continued largely uninterrupted over tumultuous times and changing administrations, cementing our place as the world leader in economic stability. 

This effective response strategy is due, in large part, to the size and scale of our national economy and the government’s ability to print the money necessary to continue normal operations until economic security returns to our general population. 

Most notably, in 1929, the United States entered the worst economic challenge in the history of our nation. The Great Depression began with the collapse of the stock market and was perpetuated by a vicious cycle of bank failures and general mistrust of the financial markets. The crisis continued for more than a decade before it was ended by the onset of WWII. In this time, more than half of all banks in the US had shut their doors forever. 

Again, in 2008, the US entered another economic crisis – this time created by the failures of the housing market. The Great Recession began when the hyper-inflated housing prices “popped,” decimating property valuations and eliminating trillions of dollars in household net worth overnight. However, similar to our resiliency in the 1930’s, the United States government kept the economy moving – slow as it may be – and mitigated the damages to stave off the collapse of our greater economy. 

Today, we find ourselves on the brink of another system failure, one which may prove to be more dangerous and wider sweeping than the previous two economic struggles. The US insurance market has been steadily declining in coverage and affordability, slowly creeping to ultimate failure of the market. As a nation, we have never seen the ramifications of the collapse of an insurance market. However, when individuals and businesses lose access to adequate insurance, the accumulation of personal risk will prove to be more restrictive than the economy can withstand – no matter the response of our government. 

The decline of insurance affordability has not happened overnight, in fact it has been a central point of the past two nationwide elections and has been a top priority for candidates up-and-down the ballot for years. 

Insurance serves as a shield against unexpected risk and damages for both our nation’s businesses and consumers. Access to quality insurance alleviates the concerns and costs associated with general business practices in virtually every aspect of our economy. From medicine to property damage, business expenses, and more, insurance coverage ensures the economy remains stable. It is this coverage that offers peace of mind for consumers, increasing their buying power and stimulating the greater economy without fear of excessive loss. 

Through even the most catastrophic economic downturns and inflationary periods, insurers have provided stability and assurance to every member of the economy. Without the availability of private, mainstream insurers, the US government will be forced to expand and assume the responsibilities of insurance to ensure the economy remains stable. 

Our government has never been tested in this capacity, and the impacts and response of this crisis are unforeseen. However, there is a proactive approach our elected leaders can take to stave off the collapse of the insurance market and bolster the small business economy in the event of collapse. In 1986, the US Congress passed a bipartisan piece of legislation which empowers small businesses to prepare for such a crisis. Line 831(b) of the Internal Revenue Code was created with small business risks in mind, offering them the ability to self-insure against risks through the creation of micro-captive subsidiary accounts – similar to the tools that have been available to Fortune 500 companies for decades. 

Micro-captive insurance provides small businesses the ability and autonomy to increase their own protections, ensuring their operational capacity with the security necessary to keep the economy moving – regardless of the need for third party insurers. 

Though line 831(b) has been around for more than 40 years, the language that outlines it is convoluted and confusing in nature, offering too high a barrier for the average small business to implement without the risk of punitive audits from the IRS. This incoming Congress has the power to change that. By clarifying the language in the tax code, our lawmakers will ensure small businesses have the protections they need to respond to the ever-declining insurance market in the United States 

This simple act will further cement small business’ position as the bedrock of our nation’s economy, empowering them to self-protect against risk and to continue doing business in good faith with consumers.

Peter Dawson will be presenting a session on “Tax: updates and strategies” at our upcoming USA Captive Summit 2025 in Chicago on June 3-4. Don’t miss the chance to engage with Peter Dawson and other industry leaders during insightful panels, workshops and networking opportunities.

Learn more about the event here: www.uscaptivesumit.com.

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