Finance
Beyond Traditional Insurance: The 831(b) Plan’s Response to Market Challenges
Published by Jessica Weisman-Pitts
Posted on September 6, 2023
4 min readLast updated: January 31, 2026
Global Banking & Finance Review®
Company
Published by Jessica Weisman-Pitts
Posted on September 6, 2023
4 min readLast updated: January 31, 2026
By Van Carlson, Founder and CEO of SRA 831(b) Admin
The insurance market operates in cycles, influenced by a myriad of factors. In a Soft market, premiums align closely with claims, leading to increased profits and competitive rates for insurers. Conversely, a Hard market arises due to external challenges such as economic instability, political uncertainty, and poor investment returns.
Historically, the US experienced a notorious Hard market from 1984 to 1987. Liability premiums skyrocketed, in some cases by up to 250%, due to factors like lenient underwriting and massive litigation settlements, notably those related to asbestos. This crisis sparked allegations of insurer collusion and was highlighted by Time magazine’s March 1986 cover: “Sorry America, Your Insurance Has Been Canceled”. In response, Congress acted in 1986, capping liability premium increases and advocating for self-insurance, an idea first introduced by General Motors in 1915.
Fast forward to today, and we find ourselves in another Hard market, which began in 2021. Unlike the typical three-year cycle, this market shows no signs of relenting. Contributing factors include:
These challenges, among others, are driving up the costs of business insurance premiums.
The silver lining is that history has taught us valuable lessons. During the market hardening of the 1980s, Congress introduced the Tax Reform Act of 1986, which empowered business owners. The 831(b) Tax Code permits businesses to create and fund an 831(b) Plan, also known as a micro captive insurance company. Contributions to the 831(b) Plan are tax-deferred and can be utilized to self-insure against underinsured or uninsured risks.
This tax code encourages business owners to establish a “rainy day” fund, which can be tapped into for specific risks that might jeopardize their operations.
An adaptable 831(b) Plan can offer business coverage(s) when insurance providers demand exorbitant premiums or are reluctant to underwrite unique risks such as:
Rather than feeling beholden to insurance carriers, 831(b) plan owners can craft coverage types and limits that address their unique risks, all while retaining commercial insurance for more conventional risks.
Forward-thinking businesses should consider establishing an 831(b) Plan as a safeguard for low-frequency, high-severity risks. When such a risk materializes, and it’s likely it will, these proactive businesses won’t find themselves cornered or, even worse, forced to shut down.
831(b) Plans have proven their worth over time. So, why aren’t more business owners aware of them? Designing, implementing, and managing these plans necessitate administrative experts who can delineate the coverages, oversee the claims process, and ensure IRS compliance. Much like a 401k requires an administrator, so does an 831(b) Plan. The seasoned team at SRA 831(b) Admin boasts over 100 years of collective experience in establishing and overseeing 831(b) Plans.
About Author:
Van Carlson is the Founder & CEO at SRA 831(b) Admin. He is an industry leader in enterprise risk management solutions with over 25 years of experience. Along with the responsibility of bringing SRA’s new products to market, he helps clients achieve their financial goals and aid in protecting a business’s assets through times of uncertainty. Of SRA’s many products, the company is most known for plans that aid mid-market businesses in mitigating risks more effectively. Van began his career with Farmers Insurance Group as an agent, where he saw firsthand the benefit of how 831(b) plans can assist small to mid-size businesses. Van is a veteran of the U.S. Coast Guard.
An 831(b) Plan is a type of micro captive insurance company that allows businesses to self-insure against certain risks while benefiting from tax advantages.
Self-insurance is a risk management strategy where a business sets aside funds to cover potential losses instead of purchasing traditional insurance.
Underwriting losses occur when an insurance company's claims and expenses exceed the premiums it collects, leading to financial losses.
A hard insurance market is characterized by rising premiums, stricter underwriting standards, and reduced availability of coverage due to increased risk factors.
The Tax Reform Act of 1986 introduced significant changes to the tax code, including provisions that encouraged self-insurance through micro captive insurance companies.
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