2014 Power Broker

Transportation

Getting Answers

Sarah Allison Senior Vice President Marsh, New York

Sarah Allison
Senior Vice President
Marsh, New York

For one client completing a merger after the company’s insurance renewal, Sarah Allison had to arrange cost-efficient short-term coverage for its workers’ compensation, general liability, automobile liability and excess liability risks.

But the merger fell behind schedule, so the broker had to arrange another short-term renewal — and then another after yet another delay. After the merger’s completion, Allison had to arrange a fourth short-term renewal. The most important reason was that the risk manager wanted to show insurers that the merged entity was a much better risk than they anticipated. That led to a huge reduction in various insurance costs when the merged company renewed for a full year, the company’s risk manager said.

“The biggest challenge for us as [a merged] enterprise was the collateral required for our insurance program,” the risk manager said. “Sarah’s efforts resulted in an ultimate collateral reduction of 30 percent compared to where it was tracking for our insurance program.”

Allison also assisted another client, JHT Holdings Inc., realize significant collateral savings.

“JHT’s insurance program is high deductible in nature,” said Christopher H. Reehl, executive vice president and CFO. Many times, Allison negotiated JHT’s “two key needs,” he said: a depleting cash collateral program and a multi-month payment installment plan.  Allison and her team also “have been strong advocates for the company [in] negotiating the release of excess collateral from JHT’s previous insurance carrier on a policy which predated Marsh’s involvement with the organization,” Reehl noted.

Bridging Gaps

Barry Jones Managing Director  Marsh, London

Barry Jones
Managing Director
Marsh, London

FirstGroup plc, a major operator of commuter rail and bus services in Europe and North America, recently benefitted from Barry Jones’ expertise. A FirstGroup unit had had a long-running, large, complex crime claim that had been “drifting,” said Richard D. Millington, group insurance director. The claim was becoming more problematic because FirstGroup had an opportunity to sell the unit.

Jones gathered all stakeholders on both sides of the claim and deftly managed their expectations, Millington said. In particular, insurers had to accept that FirstGroup had significant coverage, and FirstGroup had to understand that the claim’s complexity raised legitimate questions for insurers, he said.

Ultimately, a settlement met not only FirstGroup’s financial goals but also its tight deadline. Jones, who was brought into the dispute in November 2012, facilitated a deal by March 31, 2013 — FirstGroup’s fiscal year end.

Jones also has taken a seat on the management board of FirstGroup’s in-house third-party administrator to assist it in becoming a “best-in-class” claims handler, Millington said.

Another client also lauded Jones’ negotiating skills. “Barry is a great communicator and does an excellent job in bridging the gap between people with different opinions,” the client said. “He is open to hearing the views of other parties and in brokering a deal between those parties. He is adept at knowing when to give ground in order to secure a deal rather than just pushing against a closed door.”

Saving the Day

Sheldon Kaufman, AIIC, CIP Senior Vice President Marsh, Montreal

Sheldon Kaufman, AIIC, CIP
Senior Vice President
Marsh, Montreal

Changes in regulations and marine insurance policy terms were about to affect one company’s ability to transport nuclear materials and transfer them at its terminals.

Sheldon Kaufman saw it coming, and brought the situation to the shipper’s attention. Initially, company executives were not overly concerned, despite having a contract to transport an especially large nuclear shipment. Management felt that its environmental liability insurance policy should satisfy the new regulations, but that wasn’t the case. The insurer refused to cover the exposure.

Thankfully, Kaufman had already anticipated the problem, and had approached the insurance market for an underwriter willing to cover the risk. Hours after the environmental insurer refused to cover the risk — with the shipper waiting to transport the large radioactive materials cargo — Kaufman delivered a nuclear liability policy.

“If we didn’t have even the minimum possible coverage to protect [our company], we would have had to deal with breaking significant contractual obligations, labor issues and the ramifications associated with lost revenue,” an executive with the shipper noted.

Now, with the new coverage, the shipper has been able to win more nuclear cargo business, the executive said.

“Mr. Kaufman is attentive and solution-oriented in his work, which certainly helps him succeed,” one client observed. “His responsiveness makes him a reliable broker and very easy to work with.”

A Difference Maker

Simon Methven Property Leader Aon, London

Simon Methven
Property Leader
Aon, London

In its tough 2014 property renewal, a CSX Transportation reinsurer said it needed a 40 percent rate hike — if it even remained in the program, said Juliana J. Keaton, the railroad’s director of insurance. Simon Methven, Property leader, North America and Pacific Region, assisted CSX in more accurately quantifying exposures, especially in Cat-prone regions, and assessing whether the railroad had appropriate retentions and limits in its excess program. For Cat risks, Methven looked to alternative risk financing, and educating underwriters in the insurance-linked securities and Cat bond markets about the railroad’s risks and risk mitigation efforts.

The recalcitrant reinsurer stayed, increasing its participation and cutting its rate hike to 16 percent. Keaton noted that “at least one well-respected reinsurer” has said “on more than one occasion that Simon is the reason they write our program.”

Meanwhile, the departure of key risk management executives had put the 2013 property renewal behind schedule for commuter railroad Metra. R. John Anderson, then-new director of risk manager and insurance, brought in Methven to handle the renewal and also return a portion of the program to the London market after a long absence.

Despite a time challenge and a decade of poor loss history, Methven renewed the program in time and below budget, Anderson said. Methven not only placed much of the program in London, but also persuaded underwriters to make several coverage enhancements, including stripping out an aggregate limit that had cost the railroad $500,000 over the past decade.

A Real Mover

John Raymond Senior Vice President Marsh, Philadelphia

John Raymond
Senior Vice President
Marsh, Philadelphia

Canadian Pacific Railway relied on John Raymond to replace a key market, which had written 50 percent of the railroad’s primary property program but imposed significant coverage restrictions, said Shireen Bond, managing director-risk management. The insurer was investigating a large claim that would not be resolved until after renewal, so maintaining a good relationship was key. Raymond deftly placed broader property coverage for the railway while still maintaining the insurer’s goodwill.

Raymond also helped RailAmerica create “buzz” for a restructured property program that would provide the railroad greater coverage at a lower cost, said Mike Morningstar, director of risk management and claims at Genesee & Wyoming, which has since acquired RailAmerica.

“Transferring additional risk to the insurance carriers while realizing a savings in premium was paramount to our bottom line, and Mr. Raymond was able to develop a plan which he implemented,” Morningstar said.

Another transportation industry client last year asked Raymond to execute a late change in its property risk financing plans during its program renewal. The client decided to take a much larger self-insured retention to generate substantial premium savings. Raymond further negotiated higher sublimits on several coverages, the client’s risk manager said.

“My company wanted to reduce insurance spend, create more leverage in our relationship with insurers, and gain broader terms and conditions,” the client explained. “John was an integral component of accomplishing all of our objectives.”

Keeping the Railroad Running

Jeremiah White Account Executive Aon, Baltimore

Jeremiah White
Account Executive
Aon, Baltimore

Travelliance Inc. needed its liability program renewed far ahead of its summer 2013 renewal date to satisfy its largest client, with which it has a complex contractual agreement. Missing the deadline would damage the relationship with the client, explained Todd M. Friesen, president and chief operating officer-rail transportation.

White developed a robust marketing campaign that featured the railroad’s various risk management practices, putting the railroad’s executives directly in touch with underwriters. White’s plan created competition for the account, resulting in an early deal that met the client’s insurance requirements and reduced the railroad’s liability insurance costs. The program not only preserved Travelliance’s relationship with its largest client but also provided the railroad a framework it could use with other clients, Friesen noted. “Jeremiah is simply a problem solver when it comes to insurance,” Friesen observed.

Another railroad client faced a tougher property insurance renewal due to significant fire losses as a result of long-term drought conditions. It also faced dramatically higher liability insurance rates, noted its controller.

A previous broker attempted just weeks before renewal to place the property program plus rolling stock and vehicle coverage, but failed to obtain timely rate quotes. White came in and placed all of the coverage within days at a savings of $45,000, the controller noted. He also saved the railroad tens of thousands of dollars more by placing the liability program at expiring coverage and rating terms and only a slightly higher retention, she said.

BlueBar

LBR_ResponsiblityLeaderBLUE_logo-175Commitment to Clients and the Community

Aon’s Jeremiah White takes involvement and leadership to the next level, both within his company and his community. He writes to political representatives on the federal level to express his clients’ opinions on industry-relevant topics and lobbies for their interests. He meets with local municipalities to discuss contract requirements and upcoming railroad projects, exceeding expectations to make life a little easier for his customers.

At Aon, he commits a few hours each week to talking with younger brokers, “to make sure they are learning the ‘why’ instead of just ‘how.’ ” He presents himself as a resource for his younger colleagues, helping to boost their product knowledge and pass along his energy and excitement.

And the number of community service projects that White gives his time to cannot be counted on two hands. He participates in 5K charity runs for schools in his community, volunteers for an area cold weather shelter, serves as a volunteer assistant coach for youth football and participates in his local chapter of the American Legion. White also represents the rail industry and Aon at numerous professional events.

“My time is my most valuable resource,” White said, “so whenever I am giving my time to help others I know that I am contributing positively to the future.” As the main contact for and face of the Aon Rail Practice, White is making a good impression.

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]