2014 Power Broker

Workers’ Comp

Winning Big

Thomas Edridge, ARM Managing Director Marsh, New York

Thomas Edridge, ARM
Managing Director
Marsh, New York

The longtime workers’ compensation insurer for a large client announced early last year that it planned to increase rates on all renewing accounts. Following up immediately with the insurer, Thomas Edridge learned his client faced a 10 percent to 15 percent rate hike at its Oct. 1, 2013, renewal, even though no claim had exceeded the client’s deductible for 10 years, the client’s risk manager noted.

In response, Edridge sought the insurer’s commitment by April to renew the account at expiring rates, with a two-year rate lock, or lose the profitable business. Edridge began marketing the account, but the incumbent relented by the deadline. The risk manager estimated that the first year’s savings alone could total nearly $84,000.

Meanwhile, the client’s umbrella liability insurer had said that it would be excluding coverage for occupational disease claims filed in the client’s home state. The decision followed a court ruling that those claims fell outside of the workers’ comp sole-remedy defense. Edridge, however, persuaded the insurer to hold off imposing the exclusion, because state lawmakers were crafting legislation designed to reverse the ruling’s effect.

Edridge’s effort with the excess insurer prevented a “catastrophic” exposure for the client, the risk manager said. “Without Tom’s efforts we would have been uninsured for tort-based employer liability claims arising from occupational disease.”

For another client, Edridge demonstrated that the company’s longtime relationship with a workers’ comp insurer left much to be desired, so he found them a better one.

Meaningful Support

Mike Gingrich, CPCU, CIC, CWCC Vice President Neace Lukens, Dayton, Ohio

Mike Gingrich, CPCU, CIC, CWCC
Vice President
Neace Lukens, Dayton, Ohio

Many employers need help controlling workers’ compensation program costs, and Mike Gingrich provides them meaningful support.

An employee staffing company was facing dozens of open claims that were driving up losses and driving away insurers. Gingrich first placed the new client with an insurer willing to write guaranteed-cost coverage but with a high deductible.

Then Gingrich began aiding the client in managing its claims. Under his direction, the client revamped its claims-handling process. Unlike with the previous insurer and claims processor, no new claimants went unattended for days, weeks or even months. All were contacted within 24 hours of sustaining their injuries. Gringrich also ensured that employees’ jobs were classified accurately, and Neace Lukens is auditing claims monthly — with regular input from the underwriter.

Within the first year, the client closed all but four of the 36 open claims it had when it retained Gingrich. The total incurred cost for those claims dropped by 20 percent, according to the client’s chief financial officer. Moreover, the company projects $250,000 of annual savings under its new approach, the CFO noted.

Gingrich and Neace Lukens also weighed in on an old audit, pointing out some state-specific per diem exceptions that resulted in more than $25,000 of savings for the client, the CFO said.

Gingrich is similarly aiding a research and engineering company that has seen its workers’ comp premiums soar in an Eastern state as the company’s claims management significantly deteriorated.

Owning the Numbers

Matt Mautz Senior Vice President Beecher Carlson, Atlanta

Matt Mautz
Senior Vice President
Beecher Carlson, Atlanta

Matt Mautz provides valuable assistance, even to those clients that don’t appear in need of a great deal of help.

Beall’s Inc. already had been reducing its workers’ compensation costs. But “we needed to take it to another level to provide deeper analytical insight to our claims to include predictive modeling and trending analysis,” said Vincent P. Foderingham, the company’s divisional vice president-risk manager at the time.

Mautz and his team outperformed the goals Beall’s set for 2012 and 2013. While maintaining continuity — and flat rates — with the incumbent insurer, they engaged the client’s claims team to identify and target long-term, high-exposure claims for settlement, Foderingham said. “Our average incurred has been reduced by 34 percent, costs for our average indemnity claims are down 41 percent, our indemnity claim closing percentage is up by 42 percent, and our average incurred indemnity claim per $100 of payroll is reduced by 48 percent.”

For Osage Casinos, whose workers’ comp claim frequency and severity had fallen in recent years, Mautz provided analysis that showed the client’s planned risk-financing change was not as prudent as it seemed, noted Ebb Moton, safety and risk manager. Osage had been contemplating self-insuring its workers’ comp risk, Moton explained. While Mautz was receptive to the idea, he also had some trepidation and asked for the opportunity to conduct some research. Mautz managed the pace of the decision and provided crucial analytics.

The Loss Stopper

Robert Phelan, ARM Chief Executive Officer Litchfield Insurance Group, Torrington, Conn.

Robert Phelan, ARM
Chief Executive Officer
Litchfield Insurance Group, Torrington, Conn.

Robert Phelan specializes in digging out the roots of clients’ workers’ compensation costs and preventing them from taking hold again.

Facing a growing number of claims resulting from patient handling, a large nursing home chain decided to hire a safety director to oversee what management believed would be a new, difficult-to-implement safety program.

Phelan recommended that management instead retain a specialty consultant that promised to reduce the costs associated with patient-lifting injuries by 80 percent, the company controller said. In April 2013, the company launched a pilot program at its facilities with the worst experience, and the results already are “astonishing,” according to the controller. Two facilities eliminated nearly all of their patient-lifting claims. Overall within eight months, incurred losses fell 65 percent and total claims dropped 44 percent. The company is on track to cut its patient-lifting injury costs at least 80 percent by April.

“The incurred loss reduction improves our financial results in our captive, and we also have higher productivity, less administrative work and a reduction in hiring replacement workers,” the controller noted.

History suggests that the nursing home chain should expect to sustain its recent loss experience.

Since Phelan and his injury management team began working with an auto dealership about eight years ago, the client has kept its loss ratio below 50 percent for all but one year.

Keeping Costs Down

Joe Picone, CPCU, AIC Chief Claim Officer Willis, Glen Allen, Va.

Joe Picone, CPCU, AIC
Chief Claim Officer
Willis, Glen Allen, Va.

Joe Picone’s clients say the broker is a master at showing them how they can slash workers’ compensation costs even as insurers are raising rates.

The foundation of the process is deriving frank input from clients’ employees. Employees are given the opportunity to speak freely without fear their observations will bruise management’s ego.

In January 2013, Picone and his staff implemented the process for a shipping client. “The outcomes of this program have been significant,” noted the client’s workers’ comp manager. For example, the process showed that the company can save $1 million by modifying its litigation management fee structure in key states. In its medical management area, the company is eyeing projected cost savings “in the seven-figure range” by unbundling, modifying its specialist network and encouraging greater employee use of medical caregivers in the client’s preferred provider network.

The process also spurred the client to conduct a request for proposal for a third-party administrator, which could result in millions of dollars of savings, the workers’ comp manager said.

A food service company that was unhappy with its workers’ comp program also expects to reap huge rewards after implementing the process.

Picone and his team undertook an extensive survey of key stakeholders in its workers’ compensation process and produced 200 takeaways, the company’s general counsel said.

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Investing in Industry Improvement

It is often said that the insurance industry is its own worst enemy when it comes to public relations.

Joe Picone is one insurance professional who understands the importance of providing the media with the information it needs to sketch a balanced, useful portrait of the industry.

Picone frequently serves as an information source to this publication and many others, which plays into his desire to improve the industry as a whole. At Willis, he helped to design a robust “Strategic Risk Planning” process that personalizes the workers’ comp claims process for each client. It breaks away from the broker’s “playbook,” but is “yielding millions in savings for our clients,” Picone said.

He is also keenly conscious of the importance of preparing the next wave of talent that is going to impact the industry. Picone personally vets and interviews every candidate the company hires into the claims practice, as well as works on career development programs for new hires. The programs ensure that the skills baby boomers take with them when they retire are passed along to the incoming class, strengthening the practice as a whole. His involvement also shows new candidates “how serious we are about hiring and training the right people not just for Willis, but for our industry,” Picone said. He also recently spoke at a Workers’ Compensation Institute conference on the importance of hiring the right people into a claims organization.

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A Sleuth of Risk

Robert Terracciano Managing Director Marsh, New York

Robert Terracciano
Managing Director
Marsh, New York

Robert Terracciano investigates every possibility. The result is a solution for clients facing big workers’ compensation insurance problems.

For one manufacturing client with six plants nationwide, Terracciano uncovered numerous cost-saving measures. Some could be applied companywide, others varied by plant, and yet others depended on whether the plant was located in a monopolistic state, said an attorney who worked with Terracciano.

For example, in a few cases, Terracciano recommended that the employer outsource some non-skilled jobs so the workers’ comp insurer could exclude individuals filling those positions as the client’s employees. Terracciano also sorted through job codes, finding errors that had resulted in higher insurance costs.

Those measures, which the client’s previous broker of nearly a decade had never suggested, resulted in a nearly 10 percent savings for the company.

For another client whose longtime insurer dropped it and many other New York State employers over aggregation-of-risk concerns, Terracciano and the client’s risk manager decided to beat the competition to new capacity.

The challenge was significant. The client and five competitors with a total head count approaching 100,000 would have to find new underwriters around the same renewal date. Those who failed would land in the state fund, where costs are greater and service poorer.

Terracciano found another market and nailed a cancel-and-rewrite plan ahead of schedule.

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]