Environmental

Disasters Leave a Toxic Tail

Following a natural disaster, toxic materials released by the storm waters wreak havoc on the environment and public health.
By: | April 9, 2018 • 5 min read

The year 2017 was a bad year for named storms. Hurricanes Harvey, Irma and Maria caused widespread property damage and loss of life. While refineries and chemical plants were secured, pollution and contamination from agricultural and pool chemicals as well as fuels and lubricants could be seen far and wide.

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“Since the Murphy Oil release during Hurricane Katrina, heavy industrial facilities at risk have developed stronger preparedness and storm contingency plans,” said Marcel Ricciardelli, senior vice president of environmental, design, professional and surety, Allied World.

“A single major release can result in extensive damage.”

While no Murphy Oil-scaled events occurred, 2017 saw tank roof collapses, fires and explosions, air pollution releases, spills and waste site flooding. To add historical context, Hurricane Sandy, which hit in 2013, resulted in similar types of releases from flooded vehicles and underground/aboveground storage tanks.

“Major changes in building codes or government regulations would likely be needed to harden small businesses, commercial buildings, homes and vehicles,” said Ricciardelli. “The key question is whether the cost and effort would help to reduce releases significantly.”

He added, “I believe that it has been most effective to plan for worst-case scenarios, using preparation time to remove hazardous materials and to develop contingencies for critical services. Unfortunately, there is a lack of predictability with regard to weather intensity and flooding.”

Planning for Contaminants

Flooding is a broad peril with the ability to move pollution.

“Without the ability to prevent flooding, it is difficult to prevent possible contamination from flood waters,” said Ricciardelli. “Flood water can be contaminated from sewage overflows, waste sites, releases from mechanical systems, energy infrastructure and materials in the chain of commerce.”

Marcel Ricciardelli, senior vice president of environmental, design, professional and surety, Allied World

Given that reality, “property owners should understand that contingency plans should be developed to include assistance from emergency response firms and the possible use of environmental insurance as part of their risk management plan. An environmental insurance policy may provide coverage for the clean-up of pollution that migrates from off-site sources.”

Most substantial industrial facilities have management and emergency response plans in place that are required.

“For facilities with aboveground tanks, storm surges and flooding are significant concerns for tank failures,” said Eugene Wingert, environmental manager, Chubb Risk Engineering Services. “Debris generated from a storm can also damage tanks. A facility’s contingency plan should anticipate methods that protect tanks from surges, flooding or floating debris.”

“You can debate the causes, but there is no debate on the effects. We are getting greater levels of severity in weather events.” — Robert Horkovich, managing partner, Anderson Kill

Unexpected conditions can lend themselves to toxic repercussions.

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“For example, in the case of the Arkema plant, the fire and environmental damages were the result of the loss of back-up generators,” Wingert noted. “The loss of power impacted the ability to cool the storage areas, and chemicals within these areas reacted at the higher temperatures.”

Speaking broadly, he added, “Conditions such as storm surge, flooding, winds are all perils that may exacerbate the release of toxic chemicals into the atmosphere causing third-party exposure, bodily injury, water-supply infiltration, air exposure and provoke the need for remediation.”

Continued disaster preparation becomes more important as climate change worsens.

“You can debate the causes, but there is no debate on the effects,” said Robert Horkovich, managing partner at the law firm of Anderson Kill. “We are getting greater levels of severity in weather events. Even in 2016, which was not a bad year for hurricanes, we saw batteries of dozens of hurricanes running through a state.”

As local officials increase their efforts and preparation, they are also looking at prevention. There has been some discussion of limiting reconstruction in flood zones, but it’s easier said than done.

“This is a complex question,” said Ricciardelli. “In many cases, individuals or companies can rebuild subject to zoning requirements or building codes. Building in a flood zone may come with increased building requirements and additional insurance costs.”

The combination of building codes and increased costs may prevent those with limited resources from rebuilding without government support.

Similarly, with new flood zones, consideration of revising drainage systems is taking place. Again, not so simple. Funding would be necessary to construct flood prevention and draining systems, and their effectiveness would be based on predictability.

“I believe that these types of systems would only be suitable for chronic flooding areas and can only handle situations within their design parameters,” said Ricciardelli.

“The damage from Hurricane Harvey, like Katrina, would likely not have been in anyone’s design parameters. The flooding from Harvey was caused, in part, by reservoir releases that were needed to prevent dam collapse.”

A Public Health Concern

One politically charged issue, long-tail health concerns, is not as much of a liability problem as it might seem; “Our environment has pollution from our industrialization,” said Ricciardelli.

“It is difficult to say whether the additional pollution released from a catastrophic weather event creates long-term effects beyond the chemicals and pollutants we add every day.”

He explained that “the air quality deteriorated after Harvey due to pollution from the industrial facilities in the Houston area. The air quality today is very similar to air quality prior to the storm. Consistent poor air quality is a public health issue. I believe it is unlikely the spike after a storm would result in a larger public health crisis in the long term.”

“It is difficult to say whether the additional pollution released from a catastrophic weather event creates long-term effects beyond the chemicals and pollutants we add every day.” —Marcel Ricciardelli, senior vice president of environmental, design, professional and surety, Allied World

A significant pollution event is easier to evaluate due to gross contamination within a finite area.

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“Gross contamination is more likely to cause a public health crisis,” Ricciardelli added, “which would be handled by removing individuals from the exposure and potentially making the affected area uninhabitable for an extended period.”

Horkovich stressed the importance of business interruption insurance: “I have had cases where a client was surrounded by a moat of flood waters. There was no damage to their facility, but they were unable to operate, because they could not get raw materials in or finished goods out.

“I have many clients that are chemical and oil companies,” Horkovich continued. “My advice to them is always do what you need to do to protect your facilities and your company. You can get insurance but also make it so that no one can fault your company or your management when bad things happen.” &

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]

More from Risk & Insurance

More from Risk & Insurance

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.

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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.

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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?

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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.

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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.

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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]