As Insurance Market Wavers, Micro-Captives Offer Lifeline for US Small Businesses
Peter Dawson, chief executive of Dawson LLC and adviser to the 831(b) Institute, highlights the potential of micro-captives to support small businesses in the US. The United States has historically demonstrated resilience in the face of economic challenges, thanks in part to the government’s ability to respond effectively to financial crises. However, the current decline in the US insurance market poses a significant threat to economic stability, particularly for small businesses.
The insurance market’s steady decline in coverage and affordability has far-reaching implications for businesses and consumers alike. Insurance serves as a critical shield against unexpected risks and damages, and its absence can have devastating consequences for the economy. While the US government has never faced the collapse of an insurance market, the potential consequences are dire, and proactive measures are necessary to mitigate this risk.
In 1986, the US Congress passed bipartisan legislation empowering small businesses to prepare for such a crisis. Line 831(b) of the Internal Revenue Code allows small businesses to self-insure against risks through micro-captive subsidiary accounts, providing them with increased autonomy and protection. However, the convoluted language surrounding this legislation has created a barrier for many small businesses to implement this strategy without risking punitive audits from the IRS.
The incoming Congress has the opportunity to clarify the language in the tax code, ensuring that small businesses have the necessary protections to respond to the declining insurance market. By doing so, lawmakers can further cement small businesses’ position as the bedrock of the US economy, enabling them to self-protect against risk and continue operating with confidence.
Peter Dawson will be presenting a session on ‘Tax: updates and strategies’ at the upcoming USA Captive Summit 2025 in Chicago on June 3-4, where industry leaders will discuss the latest developments and opportunities in the captive insurance market.
