RIMS 2017

The Tools to Face Uncertainty

Speakers at this year’s RIMS conference in Philadelphia will address political and economic uncertainties, and how risk managers can transform them into opportunities.
By: | March 3, 2017 • 7 min read

The theme for this year’s annual RIMS conference, “Risk Revolution,” calls on attendees to “disrupt the status quo” in their organizations.

This year in particular will challenge risk managers to change the way they think about the future. Around the world, political upheaval has wrought economic uncertainty. Brexit, Donald Trump’s surprise presidential win, and other populist movements are shattering the very idea of a status quo.

These topics will be the subject of both session presentations and informal discussions among the roughly 10,000 attendees converging on the Pennsylvania Convention Center in Philadelphia from April 23-26.

“We have evolved in an ever-changing business environment so that the status quo is no longer acceptable. It needs to be constantly revisited,” said RIMS CEO Mary Roth. “In every industry, what we did in the past may not be the best way to proceed in the future.”

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Patrick Harker, president and CEO of the Federal Reserve Bank of Philadelphia, said in an early January segment on Wharton Business Radio that “my biggest concern is concern. The biggest risk we face is uncertainty.”

Uncertainty is so ominous because unlike a defined risk, it is not necessarily manageable.

“The risk manager is in the midst of a ‘risk revolution,’ evolving into a risk strategist who is required to have plans to deal with both controllable and uncontrollable matters.”  — Scott Addis, president and founder, Beyond Insurance

“Risk is best defined as an ‘unknown’ that has a measurable probability of outcome. Uncertainty, on the other hand, involves an unknown with no measurable probability of outcome,” said Scott Addis, president and founder of Beyond Insurance and a speaker at the conference.

“Uncertainty is not quantifiable because future events are too unpredictable and information is insufficient.”

Unanswered Questions

Uncertainty will affect U.S. businesses on multiple fronts. Corporate tax changes and international trade policies are two examples.

Import tariffs and potential trade restrictions imposed with the intention of boosting American manufacturing and job creation could also limit free competition globally and drive up operating costs.

“This can happen in any country that adopts nationalistic policies. From a management perspective, we have to produce at a higher cost,” said Roger Kashlak, professor of international business at Loyola University Maryland and another presenter at RIMS this year.

Scott Addis, president and founder, Beyond Insurance

Restrictive trade policies could also compound the negative impact of a strong U.S. dollar, which makes American exports more expensive and less desirable around the world. With a diminished standing in the global marketplace, it may be hard for businesses to recoup the higher cost of labor that comes with manufacturing at home.

“There’s a cost to this political churn if you play it out. In the short term, you will create jobs that come with tax breaks for businesses, and that’s a good thing. But long term it’s very risky because we’ll miss out on competitive benefits and have higher costs,” Kashlak said.

Regulatory changes also come with a set of pros and cons. In general, less regulatory oversight means more freedom and fewer costs of compliance, which attracts foreign investment and stimulates economic activity. But over the long term, relaxed regulations could be detrimental.

The current administration’s stance on energy regulation offers a good example. If corporations are not held to standards that call for them to reduce emissions of greenhouse gases, and if subsidies for “green” companies are done away with, it provides greater freedom for businesses in every sector to choose how they produce and consume energy. More choices and fewer compliance hurdles are unquestionably good for business.

But without environmental regulation, the long term effects of climate change could also elevate risk for every sector over the long term. And as other countries invest in clean energy resources, the U.S. could lose competitive standing in that industry.

“You have to play it out from both sides,” Kashlak said. “What will we gain, and what will we be missing?”

Unfortunately for risk managers, confusion among the political ranks and strong influence exerted by the general populace on both sides of these issues make it difficult to know just which way the winds will blow.

Planning for the Unknown

Balancing short and long term goals against potential risks in the face of so much uncertainty will be a key challenge for risk managers.

“One of the biggest challenges facing any decision-maker  is developing long-term strategies while still recognizing the need to deal with the short term,” said Howard Kunreuther, James G. Dinan professor of decision sciences and business and public policy at the Wharton School and co-director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania.

Howard Kunreuther, co-director, Wharton Risk Management and Decision Processes Center, University of Pennsylvania

“We all tend to be myopic by focusing on short term impacts. But corporations, more so than individuals, also recognize the need to develop short term and long term strategies. There is thus a need to build in short term incentives to enable long term planning,” he said.

Short term impacts include end-of-year balance sheets and bonuses. But Kunreuther suggested that insurers should change their way of thinking to broaden what “short term” means. They can, for example, move away from annual property policies and toward three- to five-year terms, which would promote longer term thinking in a way that is still manageable.

Darin Goodwiler, chief compliance, risk and ethics officer at CFA Institute, said that reliable information and intelligence monitoring is the key to being prepared to react to change over the long term.

“One of the biggest challenges in any decision is developing long-term strategies while still recognizing the need to deal with the short term.”  — Howard Kunreuther, co-director, Wharton Risk Management and Decision Processes Center, University of Pennsylvania

“Risk managers need trusted and defendable information, and the faster you get it, the better equipped you are to respond to any event,” said Goodwiler, who will also be presenting a session at RIMS.

The challenge, though, lies in the vast amount of information to be gathered, and the question of where to get the best quality, most dependable facts.

“Today, the risk manager is expected to have a keen awareness of a host of issues that range from international trade policies, regulatory updates, immigration laws and import/export tax changes,” Addis of Beyond Insurance said. Risk managers will have to expand their own understanding of political and economic issues, and identify both internal and external resources and experts to fill in the gaps when necessary.

Goodwiler suggested that the best way to start planning for the future is to look back. Examine your organization’s past 20 years; what events made a significant impact, either positive or negative? How did your company respond? Are these repeatable events?

That analysis tips off risk managers to pre-event indicators. In the face of uncertainty, it’s important to be able to tell when an event or change is coming and start a proactive response to mitigate the full negative impact — or in the best case scenario, leverage it to create a positive impact. Know who the decision-makers in your organization are, and have a plan to get information into their hands as fast as possible.

Opportunities for Risk Managers

On the upside, this level of uncertainty opens an opportunity for risk managers to become strategic partners in their organizations. They can take a leading role in data and intelligence gathering, in formulating plans to identify critical upcoming changes and response plans, and in educating senior executives and boards of directors on long term risks.

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“The risk manager is in the midst of a ‘risk revolution,’ evolving into a risk strategist who is required to have plans to deal with both controllable and uncontrollable matters,” Addis said.

Recognizing that trend, this year’s RIMS conference features a new Executive Leadership track, which Roth said, “is positioned for senior professionals that are engaged in driving strategy throughout their organization.” Sessions in this track will examine “international strategic planning and ERM, the threats and opportunities of Brexit, and risk and resiliency in the changing world.”

“As leaders in risk management and representatives of the risk management community, we feel it’s imperative to engage our members and attendees in that dialogue and look at ways that others are addressing these changes and challenges,” she said. “We have to provide a forum for individuals to find out what best practices are out there and how other risk professionals are addressing the challenges they’re facing.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She 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]