Seeming once the risk management and risk financing mechanism of the “Fortune 100,” captive insurance companies have moved into Main Street America over the recent years. Today, any mid-sized company is able to enjoy the benefits of captive insurance company ownership. And, farms and other Agri-businesses are no exception. However, are Agri-captives really just a 21st Century phenomenon? The answer may surprise you.
Main Street businesses turn to a captive insurance company when traditional insurance companies no longer will provide all of the risk-transfer protection their owners need to sleep at night. Yet, this lack of insurance for Main Street, especially for agri-businesses, is nothing new. In fact, way back in the mid/late-1800’s, farmers and their business partners were coming together in mutual aid societies, later legally formed as mutual insurance companies, to insurer the risks “down on the farm” that the traditional, “big city” insurers based in Philadelphia, New York, Boston, and Hartford would not. Many bore the name of the businesses that spawned them – “Lumberman’s Mutual” and “Jeweler’s Mutual” to name just two.
Fast-forward to the 1980’s, at the urging of farmers throughout the United States, Congress gave these. “micro” insurance companies a break through the enaction of IRC 831(b), which is designed to relieve some of their tax burden. Today, because most states have created laws to make it easier, these mutual insurance societies have become captives. Yet, today’s captive insurance companies are addressing the same problem of the mutual of the 1800’s – risks that the traditional, “big city” insurers and their Silicon Valley computer programmers still do not understand, hence do not want to insure.
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