A thriving U.S. economy requires large productivity gains, which, in turn, require rapid changes in technology and work procedures. To meet these requirements, large risks need to be insured. To facilitate this, U.S. insurers go offshore to find better financial returns on their reserve funds (given the significant tax incentives) and return home with the innovative insurance products that provide risk insurance to significant industrial projects previously believed to be uninsurable. These projects boost the U.S. economy while bringing investment capital to develop the foundations for security in America’s future.

While it may seem strange to most of us for a chilly, landlocked state like Vermont to be an offshore haven: It offers American companies lucrative tax breaks through unusual insurance arrangements. “Vermont does the promotion the same way Bermuda does the promotion,” noted Andrew Barile, an insurance industry consultant.

More than 560 United States companies, including Wal-Mart Stores Starbucks and McGraw-Hill, have set up entities to insure their biggest risks and liabilities, giving them a tax benefit in the process. Panama, Cayman Islands and Bermuda are the insurance destination of choice for American companies.

The most recent arrival is Wells Fargo, which was granted a waiver by the federal Labor Department in February to provide life insurance and long-term disability insurance to its 153,000 employees through its own private unrated insurance company.

With its wholly owned insurer, known as a captive, Wells Fargo will benefit from improved cash flow, new investment income and tax breaks totaling at least hundreds of millions of dollars over the next 30 to 40 years, according to Karin Landry, an insurance consultant at the Spring Consulting Group in Boston.

Wells Fargo says that operating a do-it-yourself insurer in Vermont, rather than buying coverage from an independent insurance company, will save it money and increase the benefits it pays to workers.But Vermont ’s success in attracting insurance captives really Highlights the many ways that…

American corporations are allowed to minimize their tax bills by moving their profits, intellectual property or liabilities to places that provide substantial tax advantages, whether it is a Caribbean island, Panama, Ireland or Singapore.

And while many states in the United States provide tax breaks and subsidies to companies that move or expand operations in state, the benefits offered by offshore insurance captives are much larger. Big financial services companies typically spend $25 million to $100 million a year on insurance coverage. Being insured through a captive cuts that cost for them by 5 percent to 20 percent.

At first, the captives were set up to be used to insure companies’ warehouses or oil rigs or to indemnify executives. In recent years, however, a growing number of companies have been setting up captives to insure their employee benefits.

Nearly a dozen large companies, like Archer Daniels Midland, H. J. Heinz, Alcoa and Sun Microsystems, have won approval from the Labor Department to put employee benefits like medical and life insurance into their private insurers.