Tackling the insurance crisis this election

Van Carlson (pictured) of SRA 831(b) Admin calls for action on microcaptives in the US.

The US sits at a crossroads of political action. In a time where our nation is still recovering from a global shutdown and growing debt, we have been forced to navigate natural disasters growing in both frequency and intensity. Individuals and small businesses have needed to reallocate already razor-thin margins to cover the cost of these damages and have grown reliant on insurance coverage and government subsidies to survive. 

This election campaign cycle has included politicians from both main parties heading into the Presidential election on November 5 discussing the need for insurance reform. In light of the severity of our situation, and given the attention by politicians, it is important that all voters are aware of these proposed solutions and are informed about the details which will directly impact our quality of life moving forward. 

According to some polls, we face a partisan divide on the majority of issues facing our country. Healthcare, immigration, and the environment are all subjects of fervent debate and many are caught up in the polarisation of these issues. However, one issue stands above the rest as the central bipartisan priority this election cycle: the US economy and insurance. 

We have experienced an unprecedented rise in economic crises in the past five years. What began as a global shutdown in response to the COVID-19 pandemic was exacerbated by a spike in unemployment, disruptions to our supply chain, continued inflation, and rapid acceleration of our national debt. This impacted the stability of households across America, ravaged small businesses and led to a crisis within the insurance market—impacts that continue a cycle of economic devastation. 

Broadly speaking, the closures and supply chain issues faced by small businesses in 2020 were not covered by traditional insurance plans. As a result, small businesses took out loans in order to remain open during this period. Currently, we are seeing similar financial decisions made in response to the rise of natural disasters across the country. Traditional insurance carriers are failing to meet the needs of their insured parties, leading them to decrease coverage options while increasing premiums. 

The cost of loan repayments, salary increases to employees to match the rate of inflation, and the rise in insurance costs have been weighing on our small businesses for too long. Compounded with the destruction of homes and businesses across the country, the damages and fear of loss are quickly becoming more than small businesses can bear. 

“Voters need to be conscious of the plans and issues that will have the greatest impact on their success and security.”

The solution

These unique issues require an innovative, bipartisan solution. The US Congress created a solution in 1986, when it passed the Tax Reform Act. This bipartisan piece of legislation lowered income tax for the first time in our history and amended the US Tax Code to give small businesses the ability to self-insure against niche crises—an opportunity that had been available to Fortune 500 companies for decades, but not an option for small businesses prior to this action by Congress. 

These plans, often referred to as microcaptive insurance, or 831(b) plans, allow small businesses to set aside pre-tax dollars in a subsidiary insurance company and have proved vital to the health and longevity of America’s small business market. When executed properly, microcaptive insurance plans help small businesses accumulate reserves, providing more flexibility in their cash flow when navigating higher prices, inventory issues, and destruction of property—crises we see directly affecting our economy today. 

Additionally, their availability alleviates pressure on mainstream insurers to cover every niche crisis faced by unique industries and small businesses in our country. 

Originally signed into law by President Ronald Reagan, the microcaptive insurance market was further clarified and bolstered by Congress and the Obama Administration following the ratification of the Protecting Americans from Tax Hikes Act in 2015. It was a rare piece of economic consensus, and the importance of microcaptive insurance plans cannot be overstated. 

A lot of work still needs to be done in order to make microcaptive insurance plans more accessible to America’s small businesses. The language outlining these plans is often confusing and lacks legal clarity. As a result, small businesses need help from business, legal, and tax professionals to set up, execute, and manage the accounts, and can still be at risk for issues when reporting the establishment of microcaptive insurance to the Internal Revenue Service. However, we can solve this confusion with further Congressional clarification and support. 

The forthcoming election will be one of the most significant polls in the history of our economy. Regardless of party, voters need to be conscious of the plans and issues that will have the greatest impact on their success and security. As we look forward toward recovery and rebuilding, I encourage every voter to continue to research the proposed solutions to the issues we see today and vote for candidates who will introduce commonsense regulatory oversight in order to move our country forward. 

This is the year we can uplift and strengthen America’s small businesses for another generation, but it is up to the voters to make that happen.

Van Carlson is the founder and chief executive manager of SRA 831(b) Admin.

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