How Fire-Damaged Small Businesses Rebuilt When Insurance Failed

Micro-captive insurance plans helped California companies recover faster after wildfires.

Apr. 3, 2026 at 2:07pm

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An abstract studio still life featuring a collection of polished, geometric objects in shades of charcoal, navy, and forest green, symbolizing the financial tools and risk management strategies small businesses must navigate after a natural disaster.In the wake of a devastating wildfire, small businesses turn to innovative insurance solutions to rebuild and recover.Los Angeles Today

One year after the devastating Palisades Fire in Southern California, fewer than a dozen of the 13,000 destroyed homes have been rebuilt, and many small businesses are still struggling to recover due to inadequate insurance coverage. However, some companies were able to rebuild more quickly by utilizing micro-captive insurance plans under Section 831(b) of the Internal Revenue Code, which provide small businesses with the same risk management capabilities as larger corporations.

Why it matters

The Palisades Fire highlighted the weaknesses in California's insurance market, leaving many homeowners and small businesses uninsured. Micro-captive insurance plans are emerging as a valuable tool for small companies to manage risk and recover faster from natural disasters when traditional insurance fails them.

The details

In the weeks before the Palisades Fire, seven of the state's 12 primary insurers restricted fire coverage in the area, leaving one in 10 Los Angeles homes uninsured. This left small business owners to navigate complex tax treatments of unreimbursed losses and manage liquidity constraints, further straining their finances and accounting practices. Micro-captive insurance plans allowed some companies to continue covering payroll expenses during closures and rebuild more quickly.

  • The Palisades Fire devastated Southern California one year ago.
  • Fewer than a dozen of the 13,000 destroyed homes have been rebuilt in Los Angeles County.

The players

Palisades Fire

A devastating wildfire that struck Southern California one year ago, destroying approximately 13,000 homes and 2,600 small businesses.

Section 831(b) of the Internal Revenue Code

A provision that allows small businesses to set up micro-captive insurance plans, providing them with the same risk management capabilities as larger corporations.

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What they’re saying

“While the fire may not have been avoided, the preparation and fiscal response could have been planned for. The insurance crisis was underway before the first sparks of this fire ignited, but the devastation placed additional strain on the mainstream market.”

— Vardan Pogosian, CPA

What’s next

As policymakers and regulators evaluate the future of the insurance market, the accounting community must be a part of the conversation. Clear and consistent guidance around the tax treatment and compliance of micro-captives will be essential to ensuring these tools are used responsibly.

The takeaway

Micro-captive insurance plans are providing small businesses in California the ability to rebuild faster and more effectively after natural disasters when traditional insurance coverage fails them, highlighting the need for innovative risk management solutions in an uncertain environment.