2014 Power Broker

Pharmaceutical

A Very Cool Customer

Paula Bennett Managing Director Marsh, New York

Paula Bennett
Managing Director
Marsh, New York

A top broker sometimes saves not only the insurance program for a difficult risk but also the reputations and possibly even the jobs of the client’s top executives.

In the case of one pharmaceutical company, the company’s CFO and new risk manager were on the hot seat when a long-time broker failed to secure the tower of D&O liability insurance that senior management wanted.

The risk manager decided to dismiss the broker and bring in Paula Bennett instead, knowing full well that things could get even hotter if Bennett didn’t come through. But Bennett, whom the risk manager calls a “very cool customer,” came through indeed, turning the heat way down.

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Bennett produced a “road show” that showcased the company and its risks to U.S., U.K. and Bermudian underwriters. She ultimately placed the tower at what management considered a reasonable price. “We expected [the renewal] to be brutal, but it wasn’t at all,” the risk manager said, because of Bennett’s grasp of underwriters’ interest and risk appetite.

Bennett’s understanding of D&O insurers’ appetite for pharmaceutical risks similarly impressed another large client approaching a hardening market to renew its program with a tight budget and active claims.

Bennett “is a professional’s professional,” the client’s insurance director observed. “She never promises more than she can deliver. She knows her markets and anticipates their responses.”

Better Placement Through Rebranding

Douglas C. Carey Managing Director Marsh, Norwalk, Conn.

Douglas C. Carey
Managing Director
Marsh, Norwalk, Conn.

Douglas Carey doesn’t take shortcuts in researching his clients’ or even potential clients’ business, and it pays off in spades when he takes those risks to market.

Within the past year, Marsh — with Carey’s guidance — provided an extremely detailed response to an RFP. “This was something that the other competitors did not do,” the company’s treasury manager noted. “He took the time and effort to completely understand [our] requirements and spent hours dissecting where he saw challenges as well as opportunities to bolster our program.”

Carey saw an opportunity to “reinvent” the client’s name in the insurance market, the treasury manager said. Carey’s team studied the client — its brand, processes and vision — and scheduled meetings that provided the client’s top executives with forums in New York and London to identify the client and themselves to underwriters.

“Carrier feedback was extremely positive, as most commented that under the previous broker, they didn’t fully understand the company and its product mix,” the executive said.

Carey’s approach resulted in a noteworthy successful placement, which the broker completed within just a few short months.

The executive noted that even though the commission and fees he paid for the new program were significantly lower than for the expiring program, “we received much more insight into local placements, doubled our product liability tower at approximately the same premium dollars as expiring, and significantly bolstered our policies.”

Mending Fences

Karen Lawson Managing Director Aon, Pembroke, Bermuda

Karen Lawson
Managing Director
Aon, Pembroke, Bermuda

Karen Lawson mends fences — fences with breaches too large for any client to leave unattended.

When a client of Lawson’s sufferred a loss, several insurers refused to renew its excess product liability coverage, and others reduced their capacity. Lawson found other underwriters willing to replace the lost capacity at relatively reasonable pricing, the client’s risk manager explained. But when a subsequent loss occurrred, the company faced a challenge that seemed insurmountable.

Although management had come to terms with buying reduced limits and a much higher retention, finding sufficient capacity with no gaps in coverage wasn’t easy. Lawson, however, persuaded the market not to abandon the account, and delivered the coverage again.

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“The less obvious benefit of the success of the second challenging renewal was the fact that parts of our company had additional time to come to grips with the likelihood that we will eventually become fully self-insured for this risk,” the risk manager observed.

Another client that was renewing its umbrella coverage had seen its relationship with its insurers deteriorate “to an almost untenable position,” according to the client. But Lawson “was instrumental in providing insight that allowed us to direct our energy effectively to rebuild the relationships and secure a successful renewal,” the official said.

“Karen was able to secure extensions from insurers on ‘as expiring’ pro-rata terms that allowed us to continue negotiations,” the official explained. “The additional time allowed the program to be restructured in a way that could not otherwise have been achieved.”

Bridge Over Troubled Water

Michael O’Neill Vice President Aon, New York

Michael O’Neill
Vice President
Aon, New York

There are risks that are tough to place — and then there are those that are so tough they make the rest look like a game of pat-a-cake. Those are the risks that people bring to Michael O’Neill.

That was the case for a pharmaceutical company that is publicly traded in the United States, but based outside. As it was courting its D&O liability insurers during its last renewal, the insurers perceived some serious reasons to drop the account. For example, the law in its domiciled country compelled it to issue statements disclosing its involvement in potential and preliminary merger and acquisition activity — disclosures that U.S. companies are not required to make, the client’s inside counsel noted. In addition, the company was among several pharmaceutical companies whose sales and marketing practices were under investigation by the U.S. Department of Justice.

“Mr. O’Neill proactively managed the situation by engaging as early as possible with the underwriters, hosting numerous information sessions and countless follow-up meetings to get our program insurers comfortable and willing to renew with flat premiums,” which thrilled the pharmaceutical’s senior management, the counsel said.

O’Neill “is responsive, smart, reasonable and invests time and effort to cultivate invaluable relationships,” the attorney continued.

“I truly believe, as evidenced by the results we received, that it was his leveraging of relationships, along with the good will and the reputation he has with insurers that enabled us to place our program so successfully even in light of the challenges we were facing.”

A High Level of Organization

Lindsay Roos Vice President Bowring Marsh, Hamilton, Bermuda

Lindsay Roos
Vice President
Bowring Marsh, Hamilton, Bermuda

Clients praise Lindsay Roos’ organizational and communication skills. Both have been critical to extracting clients from product liability risk-financing jams resulting from insurers cutting back capacity and even dropping off clients’ programs.

A risk management executive for one life science client noted that for a less-than-budgeted premium increase, Roos replaced one insurer that had dropped off its program and convinced another to stay despite its decision to pull out over reinsurance problems.

Roos developed a detailed renewal submission schedule, worked with risk management staff to produce the submission package and anticipated underwriters’ questions the risk manager might face during presentations.

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“Lindsay is very organized,” said the client. “She was also instrumental in helping us explain the price increase to our board of directors and developed a very useful analysis which highlighted the increase vis-a-vis our sales increase.”

Another client faced a coverage gap shortly before renewal. An underwriter that participated on a low layer of the program dropped out without much warning. Educating insurers across multiple time zones about the client and its product resulted in multiple options for the client to eliminate its coverage gap within a few days, the client noted.

“It was really a scramble, and she managed the process beautifully,” one executive said.

“I think her high level of engagement was a very important attribute that she brought to the process,” another executive observed.

A Life Saver

Aaron Simpson Director Aon, Philadelphia

Aaron Simpson
Director
Aon, Philadelphia

As United Therapeutics Corp. prepared to embark on a professional endeavor no other entity had ever attempted, it tapped Aaron Simpson to line up professional liability insurance.

Simpson’s ability to place effective and affordable coverage played a significant part in UT’s ability to launch its new, potentially life-saving service in early 2014, according to Christina M. Donnelly, director of risk management.

The new service center that UT and a partner have developed is designed to ease the critical shortage of lungs needed for patients awaiting transplants by rehabilitating donated lungs that are not suitable for use in those surgeries.

“When we started down this path, we had no idea under what regulatory jurisdiction such a procedure and/or facility providing such treatment will fall under,” Donnelly explained. “Aaron did not wait for that determination to be made before reaching out to medical products and professional liability insurers and laying the groundwork for what would ultimately become a very successful, seamless and cost-effective insurance coverage placement for our new exposure. Having the peace of mind that comes with an effective risk transfer program allowed UT’s leadership to focus on all of the other processes necessary to achieve our projected Jan. 1, 2014, launch date.”

After the coverage was bound for another client, a revised product forecast showed the client’s professional liability exposure was less than initially projected. Simpson managed to negotiate a 5 percent reduction of premium with the primary insurer, said the client.

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]