Sponsored: Global Risk Consultants

Building a New Facility? These 7 Risk Mitigation Mistakes Could Cost You.

When it comes to managing risk, there are four options: accept the risk, ignore or dismiss the risk, transfer the risk, and lastly, mitigate the risk.
By: | July 24, 2018 • 6 min read

When it comes to managing risk, there are four options: accept the risk, ignore or dismiss the risk, transfer the risk, and lastly, mitigate the risk.

“You can’t insure away all your risk,” shares David Nugent, Manager of Code and Project Services for TÜV SÜD Global Risk Consultants (GRC).  “Sophisticated companies understand that meaningful risk mitigation is crucial to long-term success. Managing a host of property, safety and environmental exposures usually requires spending money on improvements to aging facilities and equipment.”

But, if executed without thorough planning, renovating or building a new facility can introduce unforeseen safety risks or, at the very least, waste precious budget dollars. When building a new facility or retrofitting an old one, making any of these seven critical mistakes can result in significant losses:

1. Not prioritizing your Capital Expenditure (CapEx) investment to ensure maximum risk reduction.

Budgets for maintaining or upgrading property and equipment are limited, and as such these dollars should be maximized by choosing the projects that will have the most significant impact on reducing the risk profile. Most importantly, projects should be planned with the primary goals of reducing safety and environmental threats. Capital improvements without risk reduction offer little return on investment.

“There’s no point in making improvements if they don’t reduce your risk,” Nugent explains. “Prioritizing where to spend your budget is determined through an enterprise risk assessment.”

“The first place to look would be those exposures that present the greatest threat to safety. Injuries or loss of life are completely unacceptable. Next, look at the top environmental exposures. Finally, examine the building codes in your area to see if you’re at risk of incurring government penalties.”

2. Not involving local authorities with jurisdiction in the planning process.

Building codes vary by jurisdiction, and failure to adhere to these codes could result in costly fines or extra expenses to adjust construction plans. Involving local authorities early can help to spot and resolve potential issues and avoid change orders.

“Code officials who have legal responsibility to their jurisdiction — like the fire marshal or the building code authorities — have to know what changes you plan to make to your facility and how you operate your plant,” Nugent shares.

“In some countries, they’ll shut you down on the spot if your projects violate local codes. Involving these people as stakeholders can reduce unnecessary complications during and after completion of the project.”

3. Not involving all internal stakeholders in scoping projects.

The CFO, risk manager, health and safety professionals, and the business unit manager in charge of the facility should all be involved in planning construction projects. Their input helps to set goals that are not only meaningful, but achievable.

“These people all need to be mindful of the enterprise risk evaluation and have some say in it. Only if all of these groups buy in to a project does it get the funds needed to execute it,” explains Nugent.

Insurance carriers should also be consulted to ensure the facility meets any risk management standards dictated by a policy.

“They’re the ones that are insuring some of the risk. They have to accept the risk, and it may have an impact on your premium and the conditions of your policy.”

4. Bungling bid documents through lack of detail.

Change orders cost time and money. Detailed blueprints should clearly define what improvements are taking place. Project plans are also what contractors bid on, so clear and specific plans are necessary to ensure that bidding contractors understand the scope of work and quality expectations from the get-go.

“Preparing detailed drawings with associated specifications that clearly define what improvements you’re making should help avoid change orders that delay project timelines and incur expenses for extra time and labor,” Nugent shares. “These documents may also act as a defense in the future if a construction defect is discovered due to a contractor’s shoddy execution.”

5. Hiring contractors that lack local expertise.

The best-laid plans go to waste without a skilled contractor. Comparing multiple bids line by line is a best practice, as is selecting a contractor with knowledge of local building codes. Contractors experienced with their jurisdiction’s building regulations can help ensure compliance, and may also be able to leverage relationships with local suppliers to get better pricing.

“Itemize work plans and marry up the bids — at least three — against the prepared specifications to ensure that contractors are bidding on what they were asked to bid,” explains Nugent. “A very critical piece here is selecting the right contractor with a good reputation who will adhere to your contract.”

6. Unknowingly buying and installing counterfeit equipment.

Untrustworthy distributors may sell counterfeit materials of lower quality. The problem is most common overseas, as the stringency of quality assurance varies by nation. Not only does this cheat the client out of limited budget dollars, it also increases the risk of defect.

“If you’re installing counterfeit equipment, it may look right, but it didn’t go through a battery of tests to check its quality. There’s a leap of faith there by assuming that the equipment you’re installing is properly listed or approved,” Nugent points out. “If you introduce counterfeit equipment into the mix, then all bets are off.”

Best practices include: ordering materials directly from the manufacturer, having them delivered directly to the job site, and thoroughly testing the materials for quality.

7. Overlooking environmental exposures created by capital improvements.

Any new construction project or lasting building improvement must consider the impact to the surrounding environment. Case in point: when one chemical facility broke out in fire, the newly-installed sprinkler system extinguished the flames and prevented extensive property damage — but, it also washed toxic chemicals into a nearby river, which further impacted downstream communities for miles.

“Chemical companies should be aware of changing zoning laws in their immediate area, as residential occupancies can encroach on the property line of the plants,” says Nugent. “Companies should take that into consideration and perhaps augment their protection scheme to reduce the risk to nearby residents who are just innocent bystanders.”

The Right Way to Do Things

Mismanaging the retrofitting of old facilities or construction of new ones can have severe consequences, including anything from regulatory action, business interruption, reputation damage, environmental damage, and even injury and loss of life.

Relying on engineers that can manage the spectrum of project planning helps to identify and avoid costly issues before it’s too late. TÜV SÜD GRC’s engineers are uniquely positioned to help avoid these errors.

With an average 25 years of experience from diverse technical backgrounds, including time with carriers, TÜV SÜD GRC engineers possess a unique mix of industry-specific expertise and the risk awareness needed to maximize budgets for the greatest risk reduction.

“Our people come from all walks of life in the risk world and the engineering world, and that’s what they bring to the table,” Nugent shares. “Experience enables them to see projects through from concept to completion.”

It all begins with an enterprise risk assessment, identifying goals, preparing bid documents, and working with local legal counsel and procurement teams. This process continues all the way through management of the project itself, including adherence to budget and quality standards.

“Insurance entities and independent engineering firms may do pieces of this, but we are unique in handling the entire process in-house,” concludes Nugent. “No one else has that capability.”

To learn more, visit http://www.globalriskconsultants.com/services/code-and-project-services.html



This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with TÜV SÜD Global Risk Consultants. The editorial staff of Risk & Insurance had no role in its preparation.

The only unbundled property loss prevention company to offer a complete portfolio of in-house, site-specific services and risk management solutions.

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]