Risk Management

The Profession

Paul Piazza of Honeywell International Inc. takes pride in protecting his company from all exposures — and being the master of the thermostat at home.
By: | April 4, 2016 • 6 min read

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R&I: What was your first job?

At 15, I worked as a dishwasher in an Italian restaurant. I was eager to earn money to save for a car. After months of saving and countless clean plates, I finally purchased my first car from a retired New York City police officer. Little detail was paid to the fact that it was likely a used squad car since it came equipped with the shiny cage between the front and back seats. Dates were interesting.

R&I: How did you come to work in risk management?

I was an underwriter for a major insurance carrier. I traveled to Boston to attend a seminar where a Risk Manager was giving a presentation.

I was intrigued by Risk Management; it seemed like an opportunity to have exposure to all aspects of the insurance industry – claims, litigation, risk and underwriting. I didn’t want to limit myself to one area of insurance, so I decided to pursue a career in the Risk Management field.

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

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There are many positive developments in risk management. Recognition from the C-Suites has helped foster a strong environment for growth. Additionally, senior management has demonstrated a genuine interest in not only what we do, but how we can have a major financial impact on our corporations.

R&I: What could it be doing a better job of?

There is always room for growth. When I attended college, I did not really appreciate a possible career in Risk Management. I think we could do a better job at attracting candidates and exposure to the Risk Management field at the collegiate level.

R&I: What was the best location for the RIMS conference and why?

Los Angeles. It’s a triple threat: location, weather and endless opportunities.

“Working with risks for the aerospace, oil and gas, chemical and automated control businesses — to name a few — is extremely challenging and rewarding.”

R&I: What’s been the biggest change in the risk management and insurance industry?

The position is now recognized much more as a financial function as opposed to a human resources or legal function. Risk managers have more direct exposure to CFOs, treasurers and controllers.

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

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Cyber risk, social phishing, and terrorism are all major risks. It’s an unpredictable world, and it’s a 24-hour job to ensure that I’m protecting my company’s assets and managing its exposures.

R&I: Which insurance carrier do you have the highest opinion of?

I have a high opinion of several carriers, and it would be difficult to choose, since each specializes in their own field. I always look for strength in customer service; and the ability to underwrite the tough risks.

R&I: Is the contingent commission controversy overblown?

Not in my opinion. I believe that all financial transactions should be as transparent as possible. We compensate our brokers directly, and contingent commission is not acceptable in our insurance placements.

R&I: Are you optimistic or pessimistic about the U.S. economy and why?

I am cautiously optimistic about the future of the US economy. History has taught us that our financial economy can survive and flourish after major lifetime events.

“I had the opportunity to drive a professional race car at the Dover Speedway in Delaware.”

R&I: Who is your mentor and why?

Agnes Woros was the former director of risk management for Barnes & Noble. Agnes was a tremendous mentor when I started in the risk management field. She taught me how to manage the markets and take calculated risks. Ironically it was Agnes who recommended that I accept the position at Honeywell. Best career advice to date.

R&I: What is about Honeywell that makes working there so great?

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There are numerous reasons why I relish the opportunity to work at Honeywell. Consistently, out of any major conglomerate around the world, Honeywell has one of the most diverse listings of products and exposures. Working with risks for the aerospace, oil and gas, chemical and automated control businesses — to name a few — is extremely challenging and rewarding.

R&I: What accomplishment are you proudest of?

My family. A career in risk management would not be possible without their support. Also when I was promoted to vice president of risk management at Honeywell. I am also very proud of our risk management team.

R&I: How many emails do you get in a day, and how many do you answer?

On average, I receive about 120 to 200 emails a day. I strive to answer 75 percent of those, or until the charge on my iPhone wears out.

“The physicians who volunteer for Doctors without Borders are heroes.”

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

I have a 12-year-old son who was assigned “Catcher in the Rye” as a required reading. I dusted off my copy as well. It is amazing what you can learn reading it again as an adult.

R&I: What’s the best restaurant you’ve ever eaten at?

Il Mulino’s in New York City.

R&I: What’s your favorite drink?

Chianti or a Super Tuscan wine from the Tuscany region in Italy.

R&I: What’s the most interesting place you’ve ever visited?

The Costa Rican rainforest. I was on my honeymoon and it was the only activity I choose and well worth it.

R&I: What’s the riskiest activity you’ve ever engaged in?

I had the opportunity to drive a professional race car at the Dover Speedway in Delaware.

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

The physicians who volunteer for Doctors without Borders are heroes. They deliver medical aid to countries in the midst of financial and social turmoil. These doctors are the true risk managers. They risk their own lives to save others and help solve world health crises.

R&I: What do your friends and family think you do?

Most of my friends and family think I work as a financial executive for Honeywell. If you were to ask my kids, I’m the person who knows how to fix the thermostat. It’s programmable, and this winter, my daughter insists on setting it to 74 degrees. Inevitably, I have to reprogram the system. She insists that “Dad knows how to fix the thermostat because he works at Honeywell.”




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

More from Risk & Insurance

More from Risk & Insurance

Alternative Energy

A Shift in the Wind

As warranties run out on wind turbines, underwriters gain insight into their long-term costs.
By: | September 12, 2017 • 6 min read

Wind energy is all grown up. It is no longer an alternative, but in some wholesale markets has set the incremental cost of generation.

As the industry has grown, turbine towers have as well. And as the older ones roll out of their warranty periods, there are more claims.

This is a bit of a pinch in a soft market, but it gives underwriters new insight into performance over time — insight not available while manufacturers were repairing or replacing components.

Charles Long, area SVP, renewable energy, Arthur J. Gallagher

“There is a lot of capacity in the wind market,” said Charles Long, area senior vice president for renewable energy at broker Arthur J. Gallagher.

“The segment is still very soft. What we are not seeing is any major change in forms from the major underwriters. They still have 280-page forms. The specialty underwriters have a 48-page form. The larger carriers need to get away from a standard form with multiple endorsements and move to a form designed for wind, or solar, or storage. It is starting to become apparent to the clients that the firms have not kept up with construction or operations,” at renewable energy facilities, he said.

Third-party liability also remains competitive, Long noted.

“The traditional markets are doing liability very well. There are opportunities for us to market to multiple carriers. There is a lot of generation out there, but the bulk of the writing is by a handful of insurers.”

Broadly the market is “still softish,” said Jatin Sharma, head of business development for specialty underwriter G-Cube.

“There has been an increase in some distressed areas, but there has also been some regional firming. Our focus is very much on the technical underwriting. We are also emphasizing standardization, clean contracts. That extends to business interruption, marine transit, and other covers.”

The Blade Problem

“Gear-box maintenance has been a significant issue for a long time, and now with bigger and bigger blades, leading-edge erosion has become a big topic,” said Sharma. “Others include cracking and lightning and even catastrophic blade loss.”

Long, at Gallagher, noted that operationally, gear boxes have been getting significantly better. “Now it is blades that have become a concern,” he said. “Problems include cracking, fraying, splitting.

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“In response, operators are using more sophisticated inspection techniques, including flying drones. Those reduce the amount of climbing necessary, reducing risk to personnel as well.”

Underwriters certainly like that, and it is a huge cost saver to the owners, however, “we are not yet seeing that credited in the underwriting,” said Long.

He added that insurance is playing an important role in the development of renewable energy beyond the traditional property, casualty, and liability coverages.

“Most projects operate at lower capacity than anticipated. But they can purchase coverage for when the wind won’t blow or the sun won’t shine. Weather risk coverage can be done in multiple ways, or there can be an actual put, up to a fixed portion of capacity, plus or minus 20 percent, like a collar; a straight over/under.”

As useful as those financial instruments are, the first priority is to get power into the grid. And for that, Long anticipates “aggressive forward moves around storage. Spikes into the system are not good. Grid storage is not just a way of providing power when the wind is not blowing; it also acts as a shock absorber for times when the wind blows too hard. There are ebbs and flows in wind and solar so we really need that surge capacity.”

Long noted that there are some companies that are storage only.

“That is really what the utilities are seeking. The storage company becomes, in effect, just another generator. It has its own [power purchase agreement] and its own interconnect.”

“Most projects operate at lower capacity than anticipated. But they can purchase coverage for when the wind won’t blow or the sun won’t shine.”  —Charles Long, area senior vice president for renewable energy, Arthur J. Gallagher

Another trend is co-location, with wind and solar, as well as grid-storage or auxiliary generation, on the same site.

“Investors like it because it boosts internal rates of return on the equity side,” said Sharma. “But while it increases revenue, it also increases exposure. … You may have a $400 million wind farm, plus a $150 million solar array on the same substation.”

In the beginning, wind turbines did not generate much power, explained Rob Battenfield, senior vice president and head of downstream at JLT Specialty USA.

“As turbines developed, they got higher and higher, with bigger blades. They became more economically viable. There are still subsidies, and at present those subsidies drive the investment decisions.”

For example, some non-tax paying utilities are not eligible for the tax credits, so they don’t invest in new wind power. But once smaller companies or private investors have made use of the credits, the big utilities are likely to provide a ready secondary market for the builders to recoup their capital.

That structure also affects insurance. More PPAs mandate grid storage for intermittent generators such as wind and solar. State of the art for such storage is lithium-ion batteries, which have been prone to fires if damaged or if they malfunction.

“Grid storage is getting larger,” said Battenfield. “If you have variable generation you need to balance that. Most underwriters insure generation and storage together. Project leaders may need to have that because of non-recourse debt financing. On the other side, insurers may be syndicating the battery risk, but to the insured it is all together.”

“Grid storage is getting larger. If you have variable generation you need to balance that.” — Rob Battenfield, senior vice president, head of downstream, JLT Specialty USA

There has also been a mechanical and maintenance evolution along the way. “The early-generation short turbines were throwing gears all the time,” said Battenfield.

But now, he said, with fewer manufacturers in play, “the blades, gears, nacelles, and generators are much more mechanically sound and much more standardized. Carriers are more willing to write that risk.”

There is also more operational and maintenance data now as warranties roll off. Battenfield suggested that the door started to open on that data three or four years ago, but it won’t stay open forever.

“When the equipment was under warranty, it would just be repaired or replaced by the manufacturer,” he said.

“Now there’s more equipment out of warranty, there are more claims. However, if the big utilities start to aggregate wind farms, claims are likely to drop again. That is because the utilities have large retentions, often about $5 million. Claims and premiums are likely to go down for wind equipment.”

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Repair costs are also dropping, said Battenfield.

“An out-of-warranty blade set replacement can cost $300,000. But if it is repairable by a third party, it could cost as little as $30,000 to have a specialist in fiberglass do it in a few days.”

As that approach becomes more prevalent, business interruption (BI) coverage comes to the fore. Battenfield stressed that it is important for owners to understand their PPA obligations, as well as BI triggers and waiting periods.

“The BI challenge can be bigger than the property loss,” said Battenfield. “It is important that coverage dovetails into the operator’s contractual obligations.” &

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]