David Arick Q&A: Taking captives mainstream

New RIMS president David Arick talks to Captive Review about his history working with captives, and explains why he thinks the reputation of captive insurance has never been stronger

 

Captive Review (CR): David, congratulations on your new role at RIMS, could you introduce yourself and tell us about your background in risk management?

David Arick (DA): When I was finishing college as a finance major, I was fascinated with mergers and acquisitions and was certain that my future career would involve M&A in some way.  I found an amazing opportunity at a firm that was very active in mergers and acquisitions, and that position happened to be in the company’s risk management department. The rest, as they say, is history.

I’ve enjoyed a 35+ year career in risk management and insurance and have never looked back. I have held risk and insurance positions at Nationwide Insurance, Banc One Corporation, Abbott Laboratories, Emerson Electric, General Electric, and International Paper.  This March, I will embark on my latest risk management adventure as the Managing Director, Global Risk Management at Sedgwick.

I currently serve as the President of RIMS, the risk management society®.  My RIMS involvement started around 1992.  I was working for a bank in Columbus, Ohio and a few of my colleagues were members of the local RIMS Central Ohio Chapter.  They invited me to a RIMS meeting. Right away, I saw the opportunity to network and meet a lot of professionals in a space where I had a lot to learn. Eventually, I was asked to volunteer with the local chapter and from there my RIMS involvement progressed.

CR: What are your main goals for the association during your year in charge?

DA: The risk management profession is experiencing great momentum. Over the last four years, our organizations have faced enormous challenges, and, in many cases, risk management has provided business leaders with the insight to make better, more informed strategic decisions. Things have not gotten easier. Today, the volatility and unpredictability of the world around us has amplified the importance of strong risk management. Through it all, risk professionals really stepped up and demonstrated the immense value they bring to the table.

My number one priority is to help keep this momentum going and ensure RIMS continues to support its community of talented risk leaders.  To truly tap risk management’s limitless potential, individually, we must be bold and dive into uncharted professional waters.  Together, this professional community must dive into professional development, and volunteerism and advocacy to strengthen the future of risk management. This journey includes creating opportunities for advancing students, early-career professionals, and seasoned risk leaders alike. I strongly believe that RIMS can help us get this done.

Risk management is much more than insurance buying or captive management.  There is no question that both are extraordinarily important pieces to a resilient risk program. But, risk professionals must demonstrate the value they can add to the strategy-setting and strategy-implementation processes.  RIMS must continue to develop resources and build forums for risk professionals to exchange ideas, learn from others, and strengthen their skillsets.

The key to keeping momentum going is to set our goals even higher. My priority is to help make sure RIMS supports this ambition.

CR: In your view, what are the biggest new and emerging risks US risk managers are facing, and will face in the next few years?

DA: The overall instability, volatility, and unpredictability of the world we live in has elevated the importance of strong risk management. At the same time, it has raised expectations for risk professionals to lead the charge and be a catalyst that empowers the organization to not only navigate a risk but emerge stronger after addressing it.

There are a handful of risks that will remain challenging.  Supply chain is one, especially with geopolitical conflicts seemingly on the rise.  Cyber will remain high on risk professionals’ risk register. Technology continues to improve processes and create greater efficiencies, but, at the same time, it opens doors for predators to infiltrate systems. Natural disasters and extreme weather are another risk that has become increasingly more difficult to model for.

Organizations are still grappling with a new work environment that has more and more workers telecommuting.  In some ways, these types of arrangements have improved productivity, but organizations now have technology offsite and workers logging in remotely.  I also believe it has a significant impact on corporate culture, attracting talent, and keeping talent.

Lastly, as litigious as our society has become in past years, it has become even more so with every passing day. Protecting organizations against the financial risks associated with a nuclear verdict has become extremely challenging. Risk professionals must be proactive in this area and have their organizations financially prepared (which sounds easier than it is).

CR: Could you share your experience with captives and how you have helped your organizations leverage them over the years?

DA: My first experience was very early in my career, when the bank I worked for formed a captive in Vermont. I didn’t understand much at the time but was quickly tasked with inputting the captive’s monthly financial statements, which were faxed to us back then, into the bank’s financial system. Over time, I was intrigued by how our risk manager always looked to the captive as a possible solution, and that approach has stuck with me ever since. Over the years, I’ve been exposed to group captives, protected cells, and single-parent captives, and have always looked for how we can leverage these tools to meet corporate objectives, create a competitive advantage, and navigate difficult insurance market conditions.

CR: How do you believe a captive programme can provide value to the organization?

DA: A captive should accomplish a number of objectives, but here are a few that are important to me: reducing the cost and volatility of funding predictable risk; providing access to reinsurance markets; and reducing reliance on traditional insurance companies that may not be able to support business needs over time.

CR: What should risk professionals consider when adapting captive programmes to address evolving and volatile risks?

DA: I’m sure there are numerous approaches that might work, but I believe that determining the ability to accurately model the exposure is the first step. Without data to reasonably underwrite the risk, it is difficult for me to consider exposing the captive’s capital. Even with modest historical information, my hope would be to conservatively set premium levels at first to accumulate more data and add reserves and additional capital to keep building the program over time. After data, thinking about policy language, coverage triggers, claims adjustment, etc., all need to be considered.

CR: What is your view on the current state of the US captive market?

DA: Captives are much more mainstream than ever before, and I believe the overall captive industry reputation has never been better. There are many viable domiciles around the world, numerous captive managers and other service providers to choose from, and more captive owners to compare notes with than ever before. More importantly, the volatile world around us, and the challenging and expensive insurance market that many risk managers are facing all point toward using captives as a mitigation tool.

CR: How important are captives in the future of the US risk management industry to protect against these new and emerging risks, particularly when a lack of loss data makes commercial insurers unwilling to cover these risks?

DA: Captives could serve a critical role in helping firms protect themselves against unknowns like cyber, climate risk, energy transition project risk, and other areas. Such captives could help build out the data set that commercial markets need to possibly develop commercial products for the future.

CR: How damaging is the IRS’ intense scrutiny and clamp down on 831(b) captives on the prospect of more SME risk managers forming their own legitimate captives?

DA: Any negative headlines about captives can create headwinds for those who are considering a new captive. I believe it is important for risk professionals to engage with well-known, reputable captive managers and captive counsel, and ensure that the captive structure they pursue is well-tested and does not resemble those well-known court cases that the IRS has pursued the past few years. Risk professionals must also be prepared to clearly explain to their leadership how and why their proposed captive is a legitimate, value-added financing vehicle.

CR: How can RIMS help risk professionals who are charged with strengthening their captive or that must now navigate challenging captive regulation? 

DA: I don’t think there is a RIMS event where captives are not included in the lineup of education sessions.  RISKWORLD, RIMS’ flagship event, is no different. From May 5 – 8 in San Diego, the 10,000 RISKWORLD attendees will have access to 150 education sessions, five of which are devoted to captives.  There is also one Pre-RISKWORLD Workshop focused on captives.

Beyond RISKWORLD, the use of captives is a frequently covered risk management strategy in RIMS Risk Management Magazine and the RIMScast podcast has had some brilliant captive professionals participate in its programming.

RIMS education is amazing but, the true value of RIMS is the community.  Whether at an in-person event, at a meeting held by one of the Society’s 80 chapters, or on the member-only online networking forum, every day in the RIMS universe risk professionals are connecting, asking questions, and working together to develop solutions. This camaraderie and collaboration is essential to advancing risk management capabilities globally.

 

12 August 2024
5-6 November 2025

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