Government Shutdown Insurance

Business interruption often stings more than property loss. 2019 kicked off with a “human-caused disaster” for many American citizens with the longest federal government shutdown in U. S. History. And, another shutdown is looming in mid-February. Federal employees impacted by a shutdown receive back-pay when the federal government resumes operations, but the impact they feel is immediate and real when regular paychecks stop but bills keep coming. Furthermore, what if federal employees did not receive back pay after a shutdown? Being a federal employee would be an even riskier proposition.

For many federal contractors, federal shutdowns hold no promise of back pay. Many simply face business interruption with no expectation of recompense. I heard an interview on the radio with a federal contractor. His business was unable to work during the federal shutdown, but he continued to pay his employees and all the normal costs to run his business. He told the interviewer he was “burning through his savings and anxious to see the shutdown end.”

In our experience as a captive insurance company manager, business interruption caused by man-made or natural occurrences is often the most daunting risk that businesses face, and commercial insurance to address business interruption is often limited in scope or cost prohibited. Business Interruption insurance pays businesses lost revenue due to unforeseen man-made or natural events. This is one of many reasons that small and mid-market business owners make the choice to own their own insurance company, known as a captive insurance company. Captives are real insurance companies and can insure a wide range of threats that businesses face. Captives also have greater flexibility than commercial insurers to insure unique risks that businesses face, and they receive favored tax treatment to help them accumulate loss reserves. This makes owning a captive insurance company the most powerful strategy a business owner can employ to prepare for business interruption.