2014 Power Broker

Alternative Energy

High-Energy Client Focus

Clayton Corbett, ARM Broker Aon, Houston

Clayton Corbett, ARM
Broker
Aon, Houston

Alternative energy, especially renewable energy, is more than just high-tech vehicles and lab-bench demonstrations. Some forms, such as hydro power and geothermal, have been around for many decades. And while those use well-established building and operating techniques, they still require sophisticated insurance and risk management. That’s where Clayton Corbett comes in.

“We put our renewal out for bid in July, and Clayton showed himself to be an exceptionally effective negotiator in his ability to build bridges between parties,” said the insurance buyer for one geothermal contractor. “Our workers’ comp is a large placement, so I imagine it is sought after by the underwriters, but we have found there is a lot of play in the rates. Clayton was able to secure for us very favorable terms.”

Advertisement




That was not the end of the story, however. Soon after the renewal was completed, an audit turned up an error in some of the insured’s numbers. It was a simple clerical error, innocent of intent, but could have caused a big problem nonetheless. “We just referred the whole thing to Clayton,” said the buyer. “He got it resolved. Did an excellent job. All very smooth.”

Another client is a geothermal operator, but a new one. After buying an existing facility and beginning an expansion, the client ran into trouble because coverage of the existing plant only covered minor construction and maintenance, not a major capital project. The client credits Corbett for handling the situation on the fly, keeping the construction going, and getting the necessary coverage in place to satisfy all parties.

The Experience to Face the Winds of Change

Peter J. Mavraganis Senior Vice President Marsh, New York

Peter J. Mavraganis
Senior Vice President
Marsh, New York

“Peter has been providing us with invaluable guidance in putting together an appropriate risk management and insurance program for our very specialized business as a developer of offshore wind power projects,” said one CFO. “Because there have not yet been any offshore wind power projects yet built in North America, every aspect of what we do requires innovative thinking and a customized approach.”

Specifically, the client credits Mavraganis, leader of Marsh’s Global Renewable Energy Practice, with supporting “every aspect of risk management and insurance. He has also guided us through the planning process to understand the types, amounts and costs of insurance coverage we will need in the future during the construction and operating phases of our projects. His understanding of the very unique aspects of our industry, which includes both maritime and power-generation elements, has enabled him to provide us with an outstanding level of advice and service.”

Another wind-power client added, “No one is doing things in the U.S. like we are doing. In Europe, maybe, but we are really pushing the envelope. Peter has been able to get us nonbinding, soft quotes throughout our development, backed up with expert testimony to regulatory agencies, to keep the project moving. He has been able to put together evaluations with vendors and engineers that have identified risks for our carriers.”

Mavraganis also gets accolades for a $3.5 billion clean coal project that was an underwriter’s nightmare, with mining, generation, environmental and manufacturing risks.

Finding Savings in Unexpected Places

Laura Hunter Rubin Assistant Vice President Beecher Carlson, Boston

Laura Hunter Rubin
Assistant Vice President
Beecher Carlson, Boston

Many brokers get kudos for swinging into action at a moment’s notice, so it is unusual and thought-provoking that Laura Hunter Rubin’s clients champion her tenacity and energy. “We, as a team, like her persistence and can-do attitude,” said one client, a wind-energy company.

“Laura has saved us an incredible amount of money by being diligent and focusing on our needs as a wind-farm developer. Our needs are very specific and greatly varied. She was able to negotiate our policies in a timely manner, give us more for our money than we had with the old policies and follow up to make sure we are more than adequately covered.”

Advertisement




The client continued, “Laura accomplished all that in the space of a month, which is not easy when you consider how many wind farms we have. She has successfully negotiated a return on monies paid previously to another broker, furthering our cost savings.”

As reported in the Risk & Insurance® cover story on wind energy last June, nacelle (wind turbine) fires are a persistent peril for wind farms and seem to defy predictive modeling. As early-generation installations approach 30 and 40 years in service, their losses have been rising. Clients say that Hunter Rubin’s innovative approach has been unbundling coverage, which takes persistence and diligence, and reforming packages to address the protection needs of operators and investors that have changed over the life of the facility. Clients explain that the same comprehensive level of coverage that was required when an installation was new may not still be necessary later in the life of the wind farm.

The Client’s Champion

Susan Garrard Assistant Vice President Beecher Carlson, Boston

Susan Garrard
Assistant Vice President
Beecher Carlson, Boston

An essential element of being a Power Broker® is explaining the client to the underwriters and vice versa. Usually, that is done by the client educating the broker, but Garrard’s new clients are surprised and delighted by her research. “Susan has taken countless hours to get to know our company, our operations, our business plan and our story,” said one risk manager. “Not many brokers would take the enormous amount of time with their clients that she has expended on us. She actually gets to know the folks at our company and how we function. She relays our accomplishments in her market approach, which saves us thousands of premium dollars. There is no cookie-cutter approach to Susan’s service, which is rare at a major national brokerage.”

Another risk manager brought Garrard with him when he moved companies, and asked her to handle an international placement. “She has assisted the company with a unique placement in Africa. In that particular country, there were unique restrictive demands.” Garrard made the necessary connections and assisted with negotiations with the local insurance authority, in addition to helping the client understand the relevant law. Explained the client, Garrard “placed both an international and local policy, which was rated well and was cost effective.”

Closer to home, a solid-waste-to-energy operation had “a difficult renewal on our property policy this year due to a significant loss. One of the 50 percent carriers made the decision not to renew our property policy due to the loss. Susan worked very hard with other carriers to write the coverage” — close to a quarter-billion dollars.

Enabling an Industry’s Evolution

Mike McMullen Managing Principal PowerGuard Irvine, Calif.

Mike McMullen
Managing Principal
PowerGuard
Irvine, Calif.

For this year’s Power Broker® competition, Mike McMullen had a tough act to follow — himself. McMullen took the honor last year for his innovative work helping operators backstop shaky warranties from panel makers in China. This year, he has continued applying his expertise on behalf of clients in the fast-growing, highly fragmented solar-power business.

One risk manager followed the onshore trend in the sector by moving to a U.S.-based panel manufacturer. “Mike provided great assistance at my old firm, and Mike has provided great best-practice assistance to my new firm, a startup using new technology. Mike has helped us with the types of best practice in manufacturing, particularly what we need in place to be insurable. That has also helped us with manufacturing excellence and customer assurance.”

Advertisement




In contrast to McMullen’s previous innovations in writing coverage, he got kudos this time around for helping insureds gain acceptance for new technology, which is a constant challenge in this rapidly evolving field. “Having that product assurance opens the door to a U.S. manufacturer with innovative technology in a space dominated by Chinese manufacturing,” said the risk manager.

Panel warranties are still a major source of concern for operators and for underwriters, one client noted. PowerGuard has launched a new website that allows customers to verify coverage. That is particularly important in the solar segment because some manufacturers have been less than forthright about the true nature of their coverage.

Working to Keep Coverage Within Reach

Marc Toy Senior Account Manager Beecher Carlson, Seattle

Marc Toy
Senior Account Manager
Beecher Carlson, Seattle

Lots of questions swirl around the alternative energy business and solar in particular, including siting, size and storage. While investors and operators can handle those issues on their own, the puzzle they can’t solve is why insurance seems to be so unaffordable. Carriers counter that underwriting is still evolving, and invite insureds and their brokers to make their case. Insureds say that’s one of the areas where Marc Toy excels.

“Marc intervened several times this year on our behalf,” said one client, a solar-power developer. “We had a great renewal this year, and Marc really brought down our premium. He made a strong presentation to the market about the changes in our business and was able to modify our program while staying with the same underwriters. That was important because we have highly unusual assets, even for the solar field. We thought we had to accept high premiums and tight terms and conditions, but Marc proved we did not.”

Other clients relate similar stories, of how well-developed and well-backed projects can be imperiled because Cat coverage can be unaffordable. In one case, a solar project was planned on an island subject to hurricanes.

Toy has encountered other situations where lenders or project investors have demanded high rates of coverage to protect their interests, in excess of what the project would otherwise require. In either circumstance, clients laud Toy’s ability to keep all sides engaged and focused. “Marc keeps everyone posted and informed. We appreciate that, but it’s especially important to the market,” said one client.

BlackBarFinalist:

Dimitrios Parikos,  Vice President,  Marsh

Dimitrios Parikos,
Vice President,
Marsh

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.

Advertisement




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.

Advertisement




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?

Advertisement




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.

Advertisement




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.

Advertisement




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]