Project Cargo

Moving the Big Stuff

With capacity ample, project cargo insurers emphasize project management.
By: | August 31, 2015 • 8 min read

Big changes in global energy markets and the infrastructure needs of developing nations are driving large-scale construction projects globally. The building blocks for many of those projects must move by sea, a perilous passageway with the potential for massive losses.

Soft insurance rates and plenty of capacity erase any notion of project cargo insurance as a commodity. It’s in the engineering and project management that carriers win the business.

09012015_03_ProjectCargo_Weiss

Steve Weiss, SVP, marine, Aspen

“In many insurance lines, loss control and risk management are reactive but in project cargo, it is very proactive, especially for us,” said Steve Weiss, now senior vice president, marine, for Aspen who spoke to Risk & Insurance® when he was a senior vice president for Liberty International Underwriters.

“Engineering is the life cycle of project cargo, from the time of submission through underwriting, post binding and execution.

“You don’t make money in project cargo on rates or terms and conditions, you make money on project management,” Weiss said.

Not that anyone is making a great deal of money in project cargo at present.

“The project cargo market is still very active globally,” said Kevin Wolfe, global head of project cargo for Allianz Global Corporate & Specialty.

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“There is more than ample capacity overall, but there are still a limited number of major players that prefer to lead the largest projects. Rates are more competitive than they were several years ago, but still are at a viable level where profitability can be maintained.

“Terms and conditions are always being tested by the marketplace. Some can be adjusted, but some are very specific to project cargo, such as survey warranties.

Without those in place, coverage becomes so broad that we just won’t entertain the specific risk.”

Weiss concurred: “There is plenty of capacity to build any tower you need, up to $1.5 billion or so. But there are only a handful of lead underwriters.”

Global Infrastructure Needs

By definition, project cargo varies practically with every shipment. Wolfe said that Allianz is seeing activity in all regions. In Asia-Pacific and Africa there are quite a few projects related to quality of living, water filtration, power generation and transmission. In South America and Australia, there has been a lot of bridge and tunnel construction, while the Middle East is seeing more rail building.

“In the last year, we have seen a lot more activity in plant upgrades and expansions,” said Wolfe, “whereas a few years before, we saw more greenfield projects. We continue to see jumbo projects, like the natural-gas liquefaction projects, but have seen much more activity in small to mid-sized ones.”
The project cargo market is notable for the high-profile moves of huge, expensive, heavy, fragile and unusual items.

John Michel, marine underwriting manager for Global Special Risks (GSR) Group, a subsidiary of RSG Underwriting Managers, said those moves tend to go well because there is often just one shipment, and every one is paying close attention.

That was not always the case, he said.

John Michel, marine underwriting manager, Global Special Risks (GSR) Group,

Richard Neylon, partner, Holman Fenwick and Willan

“A few years ago we had a project shipment of a complete factory being moved from North America across the Atlantic. It was thousands of parts in many shipments. We just knew there were going to be some loss(es) because of the numerous shipments.”

Michel added that GSR was able to implement a program, and handle any claims.

The highly variable nature of the project cargo market also means that any given move can be expensive to cover.

“We just bound a contract for a big generating plant,” said Kevan Gielty, president and CEO of Coast Underwriters.

“The overall market is soft, but in many projects such as this one there is heavy exposure in lag time if anything went wrong. So the pricing for that policy was firmer than we have seen recently. In cases where premiums are more competitive, there is an even greater emphasis on loss control.”

Gielty noted a continuing trend in project cargo is manufacturers offering coverage. This is not new, but in a soft market every competitor is a factor. Some very large utilities and energy companies will simply self-insure to a point and only go to the market for excess.

“We typically get involved in the delay-in-start-up [DSU] component,” he said.

“When the U.S. was slow, Latin America was busy, especially expanding power sectors, most notably in Brazil. Now we are anticipating an uptick in Mexico as the energy sector is liberalized.”
— Steven Weiss, senior vice president, marine, Aspen

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“That is not written alone because we need to be involved in the whole process.”
Weiss said that “North American rates have declined the last five to six years. The high was in 2007-08, and they are down 15 to 20 percent since then, although relatively flat so far this year. The U.S. and Canada have seen a decent uptick in project cargo because of power generation and natural gas.”

Different regions can often be countercyclical, he said. “When the U.S. was slow, Latin America was busy, especially expanding power sectors, most notably in Brazil. Now we are anticipating an uptick in Mexico as the energy sector is liberalized.”

Growth Areas

Even as underwriters track geographic and sector changes, they are also seeking new types of business.

09012015_03_ProjectCargo_sidebar_400pxGSR has recently begun to write stock throughputs. “We cover every aspect from procurement through delivery,” said Michel.

“It is a bit more of a challenge for the underwriter, but it simplifies things for the insured. This is definitely a growth area for us.

“Another extension of the project cargo market is contractor’s equipment. The energy markets in London can be expensive, and they are focused on windstorm.

“Covering that through the cargo market gets away from restrictions of geography and storm. It also moves to a market where there is ample capacity and moderate rates.”

Despite the current conditions where terms and conditions are broad and rates are trending down, Michel is sanguine.

“These trends will catch up with the industry at some point, it cannot go on forever.”

One of the interesting — and challenging — aspects of project cargo is that it can be counterintuitive.

For example, globalization of green energy might seem to be a boon, but Wolfe noted that more and more solar arrays and wind-turbine components are being made in each region, so the coverage of those moves tends to be within the engineering and construction policies, rather than in the deep-sea marine realm as it used to be when only a few places had industry capable of making such components.

“Mining is still active in North and South America, as well as sub-Saharan Africa,” Wolfe said, but again there can be an overlap with construction.

“In many regions, the biggest challenge of a mining or manufacturing project can be the adequacy of roads and bridges necessary to get components and then raw materials in, or production out.”

The variable nature and size of some coverage also makes project cargo unusual in that lead underwriters have to adapt their organizations to a large project.

“We have to consider deployment of our own resources even before we bind,” said Wolfe.

“By the time we have a contract, we have already had multiple conversations with our loss-control team. They are an integral part of the underwriting process. They might identify 40 critical items in the project that could require 100 or more surveys in total.”

Given the size and scope of Allianz, the company naturally prefers to use its own people whenever possible. But that still requires adaptation by the underwriters and marine loss control.

“As a result, we move our people around globally as needed,” said Wolfe.

“That varies with the size and type and number of projects. There can be hundreds of surveys required on different projects in different parts of the world at similar times.”

“Managing a project is a very fluid environment, modes of transit and shipping schedules change, the people change, even the risk managers. We constantly have to match people to risks and risks to people.”
— Kevin Wolfe, global head of project cargo, Allianz Global Corporate & Specialty

Adding a fourth dimension, “nothing ever stays the same over the course of a multiyear project,” said Wolfe.

“Managing a project is a very fluid environment: modes of transit and shipping schedules change, the people change, even the risk managers.

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“We constantly have to match people to risks and risks to people. We do have a short list of outside vendors that have been vetted by our head of marine loss control, but even then the internal dialogue stays lively throughout the life of each project.”

Insureds can deploy risk management as well. There are several service providers that aggregate and analyze exposures and losses.

“Data is often spread across many losses, claims, exposures, policies, programs and different companies with different platforms,” said Bob Petrie, CEO of Origami Risk.

“We use analytics to look for patterns and events that cause losses. Insureds can use those to identify sources of exposure. Then, if there is a loss, the software can be used to report a claim, and it will get the loss reports and supporting documents to the underwriters.”

One of the new targets in project cargo risk management is tracking near misses, said Phil Wiedower of Origami.

Near-miss data is often held within an owner’s records, but tends to get overlooked because there is no claim, he said.

“Owners are looking to understand what risks to retain and what to transfer. Knowing the near misses as well as the loss history is important in the transfer cost-benefit analysis,” Wiedower said.

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]

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Pinnacle Entertainment’s VP of enterprise risk management says he’s inspired by Disney’s approach to risk management.
By: | November 1, 2017 • 4 min read

R&I: What was your first job?

Bus boy at a fine dining restaurant.

R&I: How did you come to work in this industry?

I sent a résumé to Harrah’s Entertainment on a whim. It took over 30 hours of interviewing to get that job, but it was well worth it.

R&I: If the world has a modern hero, who is it and why?

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The Chinese citizen (never positively identified) who stood in front of a column of tanks in Tiananmen Square on June 5, 1989. That kind of courage is undeniable, and that image is unforgettable. I hope we can all be that passionate about something at least once in our lives.

R&I: What emerging commercial risk most concerns you?

Cyber risk, but more narrowly, cyber-extortion. I think state sponsored bad actors are getting more and more sophisticated, and the risk is that they find a way to control entire systems.

R&I: What is the riskiest activity you ever engaged in?

Training and breaking horses. When I was in high school, I worked on a lot of farms. I did everything from building fences to putting up hay. It was during this time that I found I had a knack for horses. They would tolerate me getting real close, so it was natural I started working more and more with them.

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I admit I had some nervous moments, but I was never thrown off. It taught me that developing genuine trust early is very important and is needed by all involved. Nothing of any real value happens without it.

R&I: What about this work do you find the most fulfilling or rewarding?

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Setting very aggressive goals and then meeting and exceeding those goals with a team. Sharing team victories is the ultimate reward.

R&I: What is the most unusual/interesting place you have ever visited?

Disney World. The sheer size of the place is awe inspiring. And everything works like a finely tuned clock.

There is a reason that hospitality companies send their people there to be trained on guest service. Disney World does it better than anyone else.

As a hospitality executive, I always learn something new whenever I am there.

James Cunningham, vice president, enterprise risk management, Pinnacle Entertainment, Inc.

The risks that Disney World faces are very similar to mine — on a much larger scale. They are complex and across the board. From liability for the millions of people they host as their guests each year, to the physical location of the park, to their vendor partnerships; their approach to risk management has been and continues to be innovative and a model that I learn from and I think there are lessons there for everybody.

R&I: What is the risk management community doing right?

We are doing a much better job of getting involved in a meaningful way in our daily operations and demonstrating genuine value to our organizations.

R&I: What could the risk management community be doing a better job of?

Educating and promoting the career with young people.

R&I: What have you accomplished that you are proudest of?

Being able to tell the Pinnacle story. It’s a great one and it wasn’t being told. I believe that the insurance markets now understand who we are and what we stand for.

R&I: Who is your mentor and why?

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John Matthews, who is now retired, formerly with Aon and Caesar’s Palace. John is an exceptional leader who demonstrated the value of putting a top-shelf team together and then letting them do their best work. I model my management style after him.

R&I: What is your favorite book or movie?

I read mostly biographies and autobiographies. I like to read how successful people became successful by overcoming their own obstacles. Jay Leno, Jack Welch, Bill Harrah, etc. I also enjoyed the book and movie “Money Ball.”

R&I: What is your favorite drink?

Ice water when it’s hot, coffee when it’s cold, and an adult beverage when it’s called for.

R&I: What does your family think you do?

In my family, I’m the “Safety Geek.”

R&I:  What’s your favorite restaurant?

Vegas is a world-class restaurant town. No matter what you are hungry for, you can find it here. I have a few favorites that are my “go-to’s,” depending on the mood and who I am with.

If you’re in town, you should try to have at least one meal off the strip. For that, I would suggest you get reservations (you’ll need them) at Herbs and Rye. It’s a great little restaurant that is always lively. The food is tremendous, and the service is always on point. They make hand-crafted cocktails that are amazing.

My favorite Mexican restaurant is Lindo Michoacan. There are three in town, and I prefer the one in Henderson as it has the best view of the valley. For seafood, you can never go wrong with Joe’s in Caesar’s Palace.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]