Column: Roger's Soapbox

Antisocial Compensation

By: | July 6, 2017 • 3 min read
Roger Crombie is a United Kingdom-based columnist for Risk & Insurance®. He can be reached at [email protected]

A newspaper I worked for once printed a league table of CEO pay in the Bermuda insurance industry. The table contained only one mistake. The best-paid CEO reportedly earned $5.1 billion that year. Yes, billion. His peers were on an average of $1 or $2 million a year.


The $5.1 billion wasn’t a random figure. It was his company’s gross premiums for the year. Simple enough mistake, sort of.

The CEO told me that he wasn’t thrilled, but admitted that when his peers read the table, they might raise their pay gigantically, and then he’d have to do the same. He was kidding.

Cognitive dissonance is the discomfort that arises from holding two opposed opinions simultaneously. An example might be seeing your mother-in-law drive your new Jaguar over a cliff, as the old joke has it.

I suffer from cognitive dissonance on the subject of executive pay.

Obviously, the most qualified, capable and efficient person in a company should earn top dollar, yet the level at which CEOs are paid in many industries astounds me.

Relax: I don’t count insurance among those industries. Yes, insurance CEOs can make big money, but not at the level of their peers in, say, hedge funds, retail or other pursuits. (And not with a carried interest loophole, either.)

A gigantic paycheck is anti-social. People aren’t on minimum wage because that’s what their work is worth; it’s because that’s all they can get.

Relax further: I’m not overly distressed by the average gap between those at the top of much of the pay scale and those at the other end. We’re capitalists. Belief in meritocracy, and rewards that match responsibility and performance, are articles of faith.

Here’s what I’m talking about: Marc Lore, chief executive and president of U.S. e-commerce at Walmart, made nearly $237 million in 2016. Tim Cook, CEO of Apple, pulled down $150 million, and John Weinberg of investment banking advisory firm Evercore Partners was paid $124 million that year. Those numbers exclude profits from stock options, as I understand it.

See what I mean? Those guys and their peers are top businessmen who deserve rich rewards, but $237 million a year — almost a quarter of a billion — just sits wrong.

These monster pay packages are fair, proponents argue, because (a) the execs might command as much elsewhere; (b) their efforts add more to the bottom line than they cost; and (c) the company’s remuneration committee said it was OK.


Top-level insurance bosses, the guys who take on our risks, typically make between $10 and $25 million a year. Seems reasonable, doesn’t it?

Besides all that, what would you do with the money? Once you’ve bought the homes, the yacht, and gold everything, what would you do with next year’s $237 million?

That’s my lack of ambition speaking. I know it’s not about the money. It’s about the power. That big, swinging pay packet is the most concrete evidence of power in action.


A gigantic paycheck is anti-social. People aren’t on minimum wage because that’s what their work is worth; it’s because that’s all they can get. Reading that a store executive made more in a year than the worst-paid 15,000 full-time workers in his town is hardly a recipe for social cohesion.

Solutions are hard to divine. Legislation, such as pay caps, is always a terrible idea. Ditto penal taxation. A little common decency in the more powerful boardrooms might not go amiss.

Shareholders are the only ones with the power to change corporate remuneration policies. Normally, if everyone’s making money, shareholders don’t care, but lately, British shareholders have been agitating for changes to executive pay.

Sir Martin Sorrell, founder of advertising agency WPP, has survived a series of peasants’ revolts, but his pay last year was cut to £30 million ($39 million). Shareholders would like to reduce it to $17 million this year. That would be in line with what insurance company chiefs take down, and they have real jobs.

Executive pay: enough, already.

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Marine

Crewless Ships Raise Questions

Is a remote operator legally a master? New technology confounds old terms.
By: | March 5, 2018 • 6 min read

For many developers, the accelerating development of remote-controlled and autonomous ships represents what could be the dawn of a new era. For underwriters and brokers, however, such vessels could represent the end of thousands of years of maritime law and risk management.

Rod Johnson, director of marine risk management, RSA Global Risk

While crewless vessels have yet to breach commercial service, there are active testing programs. Most brokers and underwriters expect small-scale commercial operations to be feasible in a few years, but that outlook only considers technical feasibility. How such operations will be insured remains unclear.

“I have been giving this a great deal of thought, this sits on my desk every day,” said Rod Johnson, director of marine risk management, RSA Global Risk, a major UK underwriter. Johnson sits on the loss-prevention committee of the International Union of Maritime Insurers.

“The agreed uncertainty that underpins marine insurance is falling away, but we are pretending that it isn’t. The contractual framework is being made less relevant all the time.”

Defining Autonomous Vessels

Two types of crewless vessels are being contemplated. First up is a drone with no one on board but actively controlled by a human at a remote command post on land or even on another vessel.

While some debate whether the controllers of drone aircrafts are pilots or operators, the very real question yet to be addressed is if a vessel controller is legally a “master” under maritime law.


The other type of crewless vessel would be completely autonomous, with the onboard systems making decisions about navigation, weather and operations.

Advocates tout the benefits of larger cargo capacity without crew spaces, including radically different hull designs without decks people can walk on. Doubters note a crew can fix things at sea while a ship cannot.

Rolls-Royce is one of the major proponents and designers. The company tested a remote-controlled tug in Copenhagen in June 2017.

“We think the initial early adopters will be vessels operating on fixed routes within coastal waters under the jurisdiction of flag states,” the company said.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.”

Once autonomous ships are a reality, “the entire current legal framework for maritime law and insurance is done,” said Johnson. “The master has not been replaced; he is just gone. Commodity ships (bulk carriers) would be most amenable to that technology. I’m not overly bothered by fully automated ships, but I am extremely bothered by heavily automated ones.”

He cited two risks specifically: hacking and fire.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.” — Rolls-Royce Holdings study

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty, asked an even more existential question: “From an insurance standpoint, are we even still talking about a vessel as it is under law? Starting with the legal framework, the duty of a flag state is ‘manning of ships.’ What about the duty to render assistance? There cannot be insurance coverage of an illegal contract.”

Several sources noted that the technological development of crewless ships, while impressive, seems to be a solution in search of a problem. There is no known need in the market; no shippers, operators, owners or mariners advocate that crewless ships will solve their problems.

Kinsey takes umbrage at the suggestion that promotional material on crewless vessels cherry picks his company’s data, which found 75 percent to 90 percent of marine losses are caused by human error.


“Removing the humans from the vessels does not eliminate the human error. It just moves the human error from the helm to the coder. The reports on development by the companies with a vested interest [in crewless vessels] tend to read a lot like advertisements. The pressure for this is not coming from the end users.”

To be sure, Kinsey is a proponent of automation and technology when applied prudently, believing automation can make strides in areas of the supply chains. Much of the talk about automation is trying to bury the serious shortage of qualified crews. It also overshadows the very real potential for blockchain technology to overhaul the backend of marine insurance.

As a marine surveyor, Kinsey said he can go down to the wharf, inspect cranes, vessels and securements, and supervise loading and unloading — but he can’t inspect computer code or cyber security.

New Times, New Risks

In all fairness, insurance language has changed since the 17th century, especially as technology races ahead in the 21st.

“If you read any hull form, it’s practically Shakespearean,” said Stephen J. Harris, senior vice president of marine protection UK, Marsh. “The language is no longer fit for purpose. Our concern specifically to this topic is that the antiquated language talks about crew being on board. If they are not on board, do they still legally count as crew?”

Harris further questioned, “Under hull insurance, and provided that the ship owner has acted diligently, cover is extended to negligence of the master or crew. Does that still apply if the captain is not on board but sitting at a desk in an office?”

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty

Several sources noted that a few international organizations, notably the Comite Maritime International and the International Maritime Organization, “have been very active in asking the legal profession around the world about their thoughts. The interpretations vary greatly. The legal complications of crewless vessels are actually more complicated than the technology.”

For example, if the operational, insurance and regulatory entities in two countries agree on the voyage of a crewless vessel across the ocean, a mishap or storm could drive the vessel into port or on shore of a third country that does not recognize those agreements.

“What worries insurers is legal uncertainty,” said Harris.

“If an operator did everything fine but a system went down, then most likely the designer would be responsible. But even if a designer explicitly accepted responsibility, what matters would be the flag state’s law in international waters and the local state’s law in territorial waters.


“We see the way ahead for this technology as local and short-sea operations. The law has to catch up with the technology, and it is showing no signs of doing so.”

Thomas M. Boudreau, head of specialty insurance, The Hartford, suggested that remote ferry operations could be the most appropriate use: “They travel fixed routes, all within one country’s waters.”

There could also be environmental and operational benefits from using battery power rather than conventional fuels.

“In terms of underwriting, the burden would shift to the manufacturer and designer of the operating systems,” Boudreau added.

It may just be, he suggested, that crewless ships are merely replacing old risks with new ones. Crews can deal with small repairs, fires or leaks at sea, but small conditions such as those can go unchecked and endanger the whole ship and cargo.

“The cyber risk is also concerning. The vessel may be safe from physical piracy, but what about hacking?” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]