As the federal government shutdown stretches into its second week, the ripple effects are being felt across various sectors, including the insurance industry. I’m thrilled to sit down with Simon Glairy, a renowned expert in insurance and Insurtech, with a deep focus on risk management and AI-driven risk assessment. With his extensive background, Simon is uniquely positioned to shed light on how the IRS shutdown is disrupting operations, compliance, and financial planning for insurers and policyholders alike. In our conversation, we’ll explore the operational challenges at the IRS, the direct impacts on taxpayers and insurance providers, and the broader systemic risks that could emerge if the shutdown persists. Let’s dive into this critical discussion.
Can you walk us through what the IRS shutdown means for its daily operations and the essential functions that are still running?
Absolutely, Abigail. The IRS shutdown, triggered by the lapse in federal appropriations, has led to a significant halt in most of its operations. Nearly half of the agency’s workforce—about 34,000 out of 74,000 employees—has been furloughed, meaning they’re on unpaid leave. The agency has publicly stated that most functions are closed, but they’re maintaining what they deem essential activities to protect life and property. This includes things like IT security to safeguard data systems and some limited taxpayer support. However, non-essential operations like call centers, legal counsel, and non-automated collections are completely shuttered, which creates a real bottleneck for anyone relying on the IRS for timely responses or guidance.
How are these furloughed IRS employees being affected, and what kind of communication or support is in place for them during this period?
It’s a tough situation for these workers. Many were informed of their furlough status at the last minute, often directly by supervisors, with little prior notice or planning. The acting Chief Human Capital Officer issued a notice that unless employees are specifically exempt, they’re in a non-pay, non-duty status starting October 8, 2025. As for support, there’s a promise of back pay under the Government Employee Fair Treatment Act of 2019, which ensures compensation on the earliest possible date after the shutdown ends. However, there’s still uncertainty, as some government memos have suggested that back pay isn’t guaranteed for everyone, leaving employees in financial limbo and adding to the stress of the situation.
What challenges are taxpayers facing with deadlines like the October 15 extension for filing returns due to this shutdown?
Taxpayers are in a bind, especially those who filed for extensions and are up against the October 15 deadline. With most IRS operations on hold, there’s a real risk of delays in processing returns and, more critically, in issuing refunds. Many individuals and small businesses count on these refunds for their fall financial planning, and now they’re facing longer wait times. This uncertainty can disrupt personal budgets, delay bill payments, or even affect decisions like funding insurance premiums. The backlog is only going to grow the longer the shutdown lasts, and taxpayers are left with limited avenues for assistance since call centers and other support services are largely unavailable.
How is the insurance industry feeling the impact of the IRS shutdown, particularly in terms of compliance and reporting requirements?
The insurance industry is taking a significant hit from this shutdown, primarily around compliance and reporting. Insurers rely on the IRS for validations and data necessary for filings like 1099 forms, which are critical for tax reporting. With operations slowed or stopped, meeting these deadlines becomes a logistical nightmare. Beyond that, life insurers and retirement product providers are grappling with delays in getting determinations on tax-qualified status for products like annuities. These delays can stall product rollouts or adjustments to contribution limits and rollover rules, directly impacting how insurers design and distribute offerings to clients. It’s a cascading effect that touches every corner of the industry.
Can you elaborate on how delays in tax refunds might create cash flow challenges for insurers?
Certainly. Tax refunds play a big role in the cash flow dynamics for insurers, especially in personal lines like life insurance or annuities. Many policyholders use their refunds to pay premiums or make lump-sum contributions to policies during the refund season. When refunds are delayed, as they are now with the IRS shutdown, policyholders may defer or miss payments, which squeezes insurers’ revenue streams. If these delays stretch on for weeks or months, insurers could face disruptions in their financial models, forcing them to adjust forecasts or even dip into reserves to maintain operations. It’s a subtle but significant pressure point that can affect everything from client retention to investment strategies.
Looking at the bigger picture, what are some of the broader risks for the insurance industry if the IRS remains partially closed for an extended period?
A prolonged shutdown amplifies systemic risks for the insurance sector. One major concern is the interruption of data sharing between the IRS and other agencies, like the Centers for Medicare and Medicaid Services. This data is crucial for validating premium tax credits and subsidies under the Affordable Care Act, directly affecting health insurance plans. Additionally, multinational insurers face hurdles with cross-border reporting requirements like FATCA, as the IRS’s data-matching systems are operating at reduced capacity. These delays can lead to increased manual work, higher compliance costs, and potential penalties if deadlines are missed. The longer this drags on, the harder it becomes to clear the backlog, creating a ripple effect across the entire financial ecosystem.
With new tax rules on the horizon, such as those in the proposed ‘Big Beautiful Bill,’ how is the shutdown complicating things for insurers preparing for future changes?
The timing of this shutdown couldn’t be worse with new tax legislation like the ‘Big Beautiful Bill’ in play, which introduces changes to tip income and payroll exemptions. Insurers are already gearing up for the 2026 filing season, but the shutdown has stalled critical IRS guidance and implementation updates they need to adjust their systems and processes. Without clear direction from the IRS’s legal and research divisions, which are largely inactive now, insurers are left guessing on how to interpret and apply these rules. This uncertainty can lead to costly missteps or delays in compliance preparations, putting additional strain on an industry that’s already navigating a complex regulatory landscape.
What is your forecast for the insurance industry if the IRS shutdown extends deep into October or beyond?
If the shutdown persists into late October or longer, I foresee mounting challenges for the insurance industry. We’re likely to see even greater delays in refund processing, which could further disrupt policyholder payments and strain insurers’ cash flow. Compliance backlogs will grow, increasing the risk of penalties or errors in reporting. For health and multinational insurers, the interruptions in data sharing and cross-border reporting could create operational friction that’s hard to recover from quickly. My forecast is that while the industry is resilient, a prolonged shutdown will test that resilience, potentially leading to higher costs, frustrated clients, and a slower recovery once the IRS reopens. Insurers will need to lean heavily on contingency planning and digital tools to mitigate these impacts as much as possible.
