831(b) Was About Much More Than Farm Mutuals

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​   For reasons I have yet to discern, whenever people talk about the history of captives, they focus exclusively on farm mutuals, implying 831(b) was nothing more than a political sop to representatives from the nation’s breadbasket.  Nothing could be further from the truth.  By the mid-1980s, U.S. business faced an insurance crisis caused by the following events: a Tsunami of litigation stoked by changes in tort law, aggressive plaintiff’s bars, more liberal insurance policy interpretations that broadened coverage beyond that contemplated by actuaries and, finally, larger jury awards, especially for punitive damages.  The problem was so pervasive that Time Magazine placed the crisis on a 1986 cover: 

​These events caused losses across the insurance industry, as shown in the following two graphics from the 1986 Department of Justice report titled, “Report of the Tort Policy Working Group on the Causes, Extent and Policy Implications of the Current Crisis in Insurance Availability and Affordability:” 

The top chart quantifies the insurance industry's losses for the years 1980-1985 while the second chart simply places similar data into graphical format.  Both show a clear pattern of accelerating losses, which led widespread problems.  

     Just remember: Congress passed 831(b) to solve an economy--wide problem.  While this obviously benefited farm mutuals, it also benefited a large swath of American business.