Risk Management Solutions with Van Carlson

Van Carlson Van Carlson is the Founder & CEO at SRA and has over twenty-five years of experience within the risk management industry. Van began his career with Farmers Insurance Group as an agent; eventually growing his book to be among the largest in his home state of Idaho. Van’s primary goal is to continue the upward growth of SRA and continue to develop new products to bring to market.

Episode Highlights Here:

Van:

If I sold a widget today and made my profit, I am booking the liability on that product for the next five years, though, right? For in a lot of these, you know, warranties have gotten so broad today. It’s not because it’s defective, right? It’s because it’s customer satisfaction.

Pierce:

What is an 831? B?

Van:

So it’s a tax code. And when I say 401k, 401 KS is where you would find it in our tax code, the federal tax code, right? A 31. B is the same thing. You know, it’s very similar to a 401k. When the business owners first start to hear about this week, we try to formulate because everybody knows about Form K, right? It’s designed to differ if your contributions are deductible at the company level, and it’s designed for your owner’s retirement and the employee’s retirement. And it’s an incentive, right, because if it weren’t a deferral, if I couldn’t, if I can take a deduction on my contributions to my employees on my 401 K, I wouldn’t be offering it right? That’s the incentive. And an 831. B, it’s the same thing. But it’s an incentive because of the self-insuring risk business owners have. A good example I give clients is, you know, if I had a warranty risk, let’s say I had a five-year warranty on the product I manufactured. Well, that’s an unbook liability, meaning if I sold a widget today and made my profit, I am booking the liability on that product for the next five years, though, right? For in a lot of these, you know, warranties have gotten so broad today. It’s not because it’s defective, right? It’s because it’s customer satisfaction. You know, the customer now has the power to do a review on your product. That can be very detrimental, you know, and so what do you do? You just fix it, you replace it, whatever. But these are liabilities, your bookkeeping on the books. And, you know, if you don’t, if you don’t take $1, and set it off to the side, say, hey, if something happens on Mises dollar, Uncle Sam says, no, no, no, the year you incur the income is you pay the taxes, as we all know, a 31 b was designed back in 1986. Because what was happening back then was a lot of clients just couldn’t get insurance. Or if you had one claim, you’re being renewed. So now we’re having this. They call it the liability crisis. I wrote an article for Forbes on it and why the 86 tax code came about. But what Congress did then said, listen, we’re going to create an incentive for you to recognize the risk. You can’t transfer you just retain your company. And you’re gonna give it at that point, you could put up to $1.2 million into that 831 B plan, just like it’s a contribution limit, right? So that’s, that’s where it started. And it was designed again for handling general liability, work comp, things that you cannot, things that were either too expensive to get that you had exposure to, or you just couldn’t simply buy insurance for it anymore. And the other aspect of that was crop insurance, crop insurance, what was happening in crop insurance at that time, the private sector was getting out of it. And now it’s become a government program. No different than FEMA today. Right. So most crop insurance programs are either backed by the federal government or the federal government that has a paper. They just put the paper on some other carrier, but it’s backed by the creditworthiness of the federal government. Because it’s just so catastrophic, so expensive to manage everything else. That’s why private sectors don’t want to be crop insurance. So that was another thing that was happening to farmers who were finding themselves not able to buy crop insurance. And again, Congress said, Okay, well, we got to put this money aside. In the event these things happen, we want to keep it tax deferral. Why because the farmer, the business owner, whatever, it just has a lot more money to work with. Because when we talk about today’s risk, we’re to say okay, if if I got hit with a brand’s brand damage, where somebody came in, find a restaurant, they got a foodborne illness, right. And now I gotta shut down for three days, and I’m making the local news. Okay, that’s my brand, right? That my brand has everything in today’s world, especially with social media in the age of information, right? Well, how are you going to fight that? Where are you going to turn to? You can’t buy traditional insurance because traditional insurance doesn’t cover brand damage. So what are you gonna do, you’re gonna go down to the bank, get an extra line of credit now and go, Hey, I gotta go hire a publicity agency up, I got to hire advertising I got to recoup my good name are you going to take you’re going to take advantage of companies products, like a 31 B, and build a war chest for those things in the event they happen? And so when we start talking about all those different things that go on out there, then, of course, here comes COVID-19. I mean, if PPP didn’t hit, I think we would have, thank God. I mean, I hate the fact we spent $5 trillion on this and pumped it out throughout the economy. Don’t get me wrong, but you know, I think I think on the side of that, what would happen if we didn’t because why because businesses are not ill-prepared for those rainy day type situations.

Van:

I mean, there’s never been an incentive. for business owners to save money, there’s been all the incentive in the world to spend money. And God bless them small to middle-market business owners. You know, I was talking about subcontractors I love them. You know, they make $1. And he spent $1.10. You know, it’s what’s what they know, you know. But at the end of the day, though, you got to recognize the risk you took business owner, the employees, you’re some help supporting the families, support, house payments, and all the other things that go into your business help create a life for people. And then you go buy more stuff. Do you take on more debt? Or do you play it straight, like big businesses, do big businesses have been using these types of tools for literally decades now? What we did was we brought our price points down to where the small middle-market business owners can now participate in these types of programs. These tools have been around for a long time. And unfortunately, I talk in front of business groups all the time I talk in front of CPAs. And all that gets, and this is the first time they’re hearing about this code. And it’s just slightly frustrating for us because it’s like, these are had, we had a bunch of people that had 831 B’s and had piled money way over. We wouldn’t have to do PPP, right? If everybody had their own little 831 B’s set aside, they could turn to use that money. But what do we what did we do? We pumped by train dollars into the economy was artificial? No, nothing was sold. Markets are built. And now, what do we have? Do we have inflation through the roof? And who knows what that’s going to end at this point? We just literally put a bunch of dollars into our economy. And it’s causing, causing. Who knows, right? I’m not. Yeah, I don’t know where the, I don’t wanna get too political here on that. I’d like to. It’ll lead to it’s just it’s simple economics when you artificially put in $5 trillion in the economy. You can expect inflation.

Pierce:

when you pump 40% of all dollars in circulation in the last couple of years, like yes, it’s gonna change that for sure. Okay, so let me just make sure I understand because I have never heard of this code before. So is it essentially just a rainy day fund as a savings account that you can write off against the revenue to just drop your taxable income?

Van:

Okay, so it’s a C Corp.