Executive Spotlight

8 Questions for Richard Northcott

This Ironshore executive didn’t get into fine art on purpose, but has developed expertise in its beauty and its risks.
By: | May 4, 2018 • 6 min read

Ironshore Director of Fine Art & Specie Richard Northcott took an indirect path to insurance, as many in the field do. But in the process, he found his niche and built decades worth of knowledge in the world of fine art.

In this Q&A, Northcott describes the evolution of his experience in the high-stakes world of fine art and delves into emerging risks facing museums and other art professionals.

R&I: How did you get into the world of fine art?

Richard Northcott: I found myself like so many people in our industry falling into insurance. I actually graduated back in 1989 with a degree in agriculture. But three years of studying agriculture at university taught me that in the UK, unless you own your own farm, it’s hard to build a successful career. So I started looking for graduate jobs.

Advertisement




There was an advert in the Times newspaper in London for a graduate trainee at a small Lloyds broker. They only employed about 30 people. I turned up for the interview. I spent 40 minutes talking to one of the company directors about cars because he’d just bought a new car and cars were my hobby. When I got home after the interview and told my mother, she said “Richard, how could you?”

But something must have gone right because they called at 9 a.m. the next morning and said, “When can you start?” I walked into a broker not even knowing that they did fine art insurance.

R&I: How steep was the learning curve?

RN: In those days they would start you off with the most basic tasks. I spent 3 days in the post room, 4 months doing processing, and then moved to the claims department for about a year. Then finally they promoted me into the placing department as a fine art broker, and that’s where I really started learning their trade.

I walked into a broker not even knowing that they did fine art insurance.

The company was sold and I ended up running a department called the Specialties Division in the larger group which was a multi-specialty unit, but fine art was always at its core. I’ve grown up in the broking community. I’d been a broker for 22 years.

R&I: How did you move from brokering to underwriting?

RN: In 2011, I was approached by an underwriter that I did a lot of business with, who shared with me that he was leaving his company and had offered to help his employer find a replacement. He asked if I was interested, and I jumped at it.

One of the first things I did when I became an underwriter was to go through the portfolio of business that I inherited and make some quite severe changes. We got rid of about $10 million of premium in a year, business that wasn’t in my appetite, in my experience or simply was not profitable. Then we set about rebuilding the portfolio of business in the shape that I wanted.

Today we have a book of business that’s 65 percent fine art, about 25 percent general specie, about 5 percent classic cars and motor sport, about 3 percent cash in transit and about 2 percent jewelry.

R&I: What’s your favorite aspect of underwriting fine art insurance?

Richard Northcott, Director, Fine Art & Specie, Ironshore

RN: The most enjoyable part of my job as a broker was going out and meeting clients, and I really wanted to maintain that client contact as an underwriter. I spend a fairly substantial part of my time out on the road meeting with customers, going to see some of these wonderful art collections and museums around the world and talking to the registrars, and the curators, and the risk managers of these institutions about what their issues and concerns are.

R&I: What are the top issues museum risk managers are facing?

RN: Art is becoming more valuable. A Picasso or Monet can sell for as much as $250 million at auction. Whole collections can be worth billions. Last year, for example, I saw a Francis Bacon show that was valued at around $2 billion.

Increasing values also increase exposure. Museums commonly organize exhibitions and art shows. Every time you are moving, storing and displaying art, the risk of damage or deterioration increases, and sometimes the financial loss potential is very significant.

Art is becoming more valuable. A Picasso or Monet can sell for as much as $250 million at auction. Whole collections can be worth billions. Last year, for example, I saw a Francis Bacon show that was valued at around $2 billion.

We’re seeing clients and their attorneys take note of that. They are getting involved in the drafting of loan agreements, which have become increasingly complex as drafters seek to shift the lion’s share of liability onto borrowers.

R&I: How exactly are loan agreements changing?

RN: A decade ago, loan agreements were pretty standard. Most included a clause requiring the borrower to carry a boiler-plate fine art insurance policy. Those policies typically exclude coverages for acts of war or terrorism, confiscation, general wear and tear and deterioration. Now lenders sometimes want borrowers to carry those coverages. Some lenders of contemporary art also ask for cyber coverage, since modern artists increasingly experiment with digital medium, which could expose them to a systems breach amongst other risks.

The biggest and most concerning change, however, is that lenders are increasingly asking for borrowers to accept ‘absolute liability’ in contracts.

R&I: What is absolute liability?

RN: By asking borrowers to accept absolute liability, they hold them responsible for anything that happens to a piece of art while it is in the borrower’s care, including while it’s in transport and on display.

That could encompass a wide range of circumstances and scenarios. Borrowers could even be on the hook for a loss of market value that occurs while they are responsible for the art. They could be liable for any natural deterioration that occurs. They might end up having to pay for things totally outside of their control if they accept absolute liability in a loan agreement.

There is no technical legal or insurance definition of absolute liability, so it could all come down to what a lawyer can argue in court.

R&I: How can museums protect themselves?

RN: Museums could have many millions of dollars at risk if they put on a high-profile show, and most won’t have the financial capacity to take that on. Before signing any loan agreement, they should contact their brokers and insurers to verify their coverage and limits and identify any gaps between the liability they are being asked to accept, what insurance coverage they have in place and what amount of financial risk they are willing to shoulder.

Advertisement




Because each loan agreement is different, every one deserves a careful and detailed review. I see two to three loan agreements in a week, and I’ll pick apart each one with a fine-toothed comb and compare the contract with the museum’s insurance policies. Then I’ll see if there’s any additional coverage we can provide to close the liability gap.

At Ironshore, we’re lucky to have a flat management structure, so I can easily walk down to see our terrorism or political risk underwriter to determine if there are some terms and conditions he can offer for our clients. I can quickly find out if there’s extra coverage and capacity we can offer. Most of the time, we can help museums fulfill the obligations that the lender is asking them to accept by crafting bespoke solutions.

*Please visit www.ironshore.com for all disclaimers.

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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]