Expect the unexpected

When Amazon Web Services (AWS) suffered a major outage recently, millions of users felt the disruption. Yet among those most acutely affected were small businesses—organisations that depend heavily on cloud-based systems to keep operations running smoothly but lack the safety nets enjoyed by larger corporations. According to Dustin Carlson (pictured), president of SRA 831(b) Admin, the incident underscored not only how fragile the digital infrastructure has become, but also how unprepared many businesses are for cloud-dependent interruptions.

The outage’s impact radiated across sectors, but Carlson highlights that the hardest-hit small businesses tended to fall into two broad groups: e-commerce operations and professional service providers. Online retailers, whose revenue streams rely almost entirely on continuous digital access, found themselves completely immobilised. Without connectivity, they could not process orders, update inventory, or communicate with customers.

Surprisingly to some, healthcare providers were also heavily disrupted. Doctor and dentist surgeries increasingly rely on cloud-based systems to manage patient information, schedule procedures, and track insurance records. When AWS went down, many of these systems became inaccessible. “This outage essentially brought their operations to a halt,” Carlson explains. “Without a solid internet connection, they can’t connect to the resources they need to fulfil orders, serve customers, or treat patients.”

For businesses in both categories, the effect was not merely inconvenient—it was existential. A 15-hour outage translates to a full working day of lost revenue, delayed wages, and compromised service delivery. For companies operating on thin margins, even a few hours offline can inflict damage that takes months to repair.

The Human and Emotional Toll

Beyond the operational chaos, the outage triggered something deeper: fear. Carlson describes a “sense of panic” reported by owners and employees when they suddenly found themselves unable to function. Many small business owners are intimately involved in their daily operations, and their livelihoods—and often those of their families and employees—depend on consistent performance.

“No one wants to be in a situation where their livelihood is in jeopardy,” Carlson notes. The outage served as a stark reminder that in a world built on digital infrastructure, the unexpected is always possible. Even the most technologically sophisticated companies cannot guarantee uninterrupted service. And for small businesses, such dependency comes with real risk.

Why Outages Are Becoming More Common

Carlson argues that the AWS failure was not an isolated fluke but part of a worrying trend. “We’re starting to see just how fragile the internet is,” he says. As businesses increasingly rely on a handful of cloud providers, a single technical issue can have global consequences.

Recent years have seen a sharp rise in both the frequency and severity of outages across major platforms. With more companies migrating to cloud-based solutions for everything from file storage to point-of-sale systems, the potential for widespread disruption grows. The centralisation of digital infrastructure has created a single point of failure—one that can affect industries far beyond those traditionally considered “tech-dependent.”

The airline industry serves as a dramatic example. Carlson points to the millions lost by Delta and United Airlines during outages affecting their scheduling and operations systems. The financial ramifications dwarf those faced by most small businesses, yet the principle remains the same: one provider’s downtime can wreak havoc across an entire sector.

How 831(b) Plans Offer a Safety Net

Traditional insurance policies have not kept pace with these realities. Internet outages and cloud failures typically fall outside standard coverage, leaving businesses to shoulder the losses alone. Carlson argues that this gap demands proactive solutions—specifically, the use of 831(b) Plans, sometimes known as microcaptive insurance plans.

“These plans allow businesses to set aside tax-deferred reserves to offset the impact of underinsured events,” he explains. Designed by Congress in 1986 as a financial resilience tool, 831(b) Plans allow small businesses to insure risks not addressed by conventional insurers.

Carlson shares a real example: a health and wellness company in Arizona that relies heavily on a cloud-based system to manage orders, client data, and supply-chain logistics. While they have not yet suffered an outage themselves, they recognise that their reliance on third-party systems exposes them to substantial risk. Working with SRA 831(b) Admin, they developed an 831(b) Plan tailored to cover potential losses from a cloud interruption. “Being proactive in designing your 831(b) Plan is essential,” Carlson emphasises.

Challenges in Adoption

Despite the growing need, many small business owners remain unaware of 831(b) Plans or are confused by myths and misconceptions around them, including past questions from the IRS about legitimacy. Carlson stresses that these plans remain firmly grounded in law and are compliant when administered correctly. SRA 831(b) Admin follows a strict four-part test—risk transfer, risk distribution, fortuitous risk, and adherence to insurance principles—to ensure regulatory integrity.

With insurance markets in crisis and traditional coverage shrinking, interest is rising rapidly. But greater education is still needed to help owners understand how microcaptives can strengthen long-term resilience.

As Carlson puts it bluntly, “The reality of the situation is that you must self-insure.” Internet outages are not going away; if anything, they will grow more disruptive as the economy becomes more intertwined with cloud-based platforms. For small businesses, the lesson is clear: expecting the unexpected is no longer optional.

Risk planning tools like 831(b) Plans offer a way forward—a means to preserve stability even when essential systems fail. For business owners looking to protect their operations, their employees, and their peace of mind, modernising their approach to risk may be the most essential investment they can make.

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