2018 Most Dangerous Emerging Risks

AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field. 
By: | April 9, 2018 • 7 min read

Viewers of even one hour of commercial television will likely see pharmaceutical commercials promising to cure eczema, migraine headaches or pattern baldness, among other things. But as fast as viewers can say, ‘ask your doctor if this is right for you,’ on comes a scary litany of associated risks.


Some industry insiders would say that it’s the same scenario with artificial intelligence (AI) — lots of benefits but with every benefit comes a new risk or two, making AI a risk multiplier across many industries, insurance included.

Artificial intelligence is already surrounding us. More and more, common — and evolving — intelligent devices at home, work, school and play are woven into the fabric of our lives. Some we recognize. Some we don’t. But either way, it’s here; it’s not going away. Nor should it. With the potential to do many things better, quicker, cheaper and safer, AI is a force to be embraced.

For example, AI can perform fraud detection much more robustly than humans can. Look at medical billing fraud as an example.

Thompson (Tom) Mackey, risk management consultant, EPIC Insurance Brokers and Consultants, said the auditing of Medicare cases with an eye toward fraud detection is 8 percent successful when conducted by humans. Using AI, the detection rate increases to 80 percent.

Instead of fearing AI, experts say, it’s better to identify risks and work to mitigate them.

Adam Cottini, managing director, cyber liability practice; area senior vice president, Gallagher

Adam Cottini, managing director, cyber liability practice and area senior vice president, Gallagher, New York City, where he is responsible for the overall direction of the cyber liability practice, said “a shift in liability” is an AI risk that should be on the radar of insurers and insureds.

“Technology allows machine learning in things such as robotics, self-driving cars, drones and other items. These things are deployed in a variety of industries. What happens if there is a massive failure? When something goes wrong you need to assess the loss and determine who is liable.”

Despite the dangers, Cottini feels that AI offers a great opportunity to increase safety and decrease injuries and losses.

“The predictive algorithms have given AI an edge over humans. There is a small percentage of decisions where a human has an advantage. For most decisions, in driving or other areas, the machine is going to perform at a higher level.

“If you are a risk manager of a vehicle fleet, you need to look at the cost-benefit of the automated technology. But you also consider how AI is helpful. It can quickly find and diagnose problems. It’s the best of both worlds — it does what it can, and if need be, it also involves a human,” he said.

Take, for example, self-driving cars. “What is the safety mechanism?” Cottini asked. “These devices are all connected. How do they deal with a failure at the command center? What is the back-up plan? Can they communicate locally?”


In this scenario, Cottini said liability is likely to shift from auto policies to product liability policies; from drivers to product manufacturers.

Mackey specializes in the design and implementation of risk management programs for clients. Mackey identified a range of internet-related risks that fall under the umbrella of cyber security and also named business interruption as an exposure. But, the biggest risk, Mackey said, is the risk of the unknown.

“AI is a newer risk, but it’s also a game changer. It changes every day,” Mackey said. “With fire or property or anything else, the risks are well known. There are risks that are inherent in AI that we don’t know about yet. In my mind, the main risk associated with AI is basically the uncertainty that comes with it. It’s a brand-new frontier.”

“Liability is likely to shift from auto policies to product liability policies; from drivers to product manufacturers.” — Adam Cottini, managing director, cyber liability practice, Gallagher

Kelly Geary, Integro’s U.S. cyber practice leader and managing principal, also said AI is a risk multiplier in the form of increased cybercrime.

“Cybercrime is already at pandemic levels,” Geary said. “The ROI for a cybercriminal is 1,000-plus, and the risk of getting caught is low. AI makes it easier for these criminals to perpetrate crimes en masse.”

Also high on Geary’s radar is what she called a shift from financial risk to personal risk: “AI can now threaten people personally,” she said. “Lives, health and health care are at risk. People with medical devices such as pacemakers could be affected. Criminals can control heating and cooling systems in a hospital ICU. The more connected we become, the more at risk we are,” Geary said.

Manufacturing companies, Mackey said, are becoming ultra-lean, and therefore leveraging AI through machine learning and automation.

If a machine breaks down, it could cause significant business interruption losses and contingent losses. Also, as machines work and learn, they are collecting data. A desire for that data could make manufacturers vulnerable to a cyberattack from a competitor, a bad actor or a foreign entity.

Mitigating the Risk

When it comes to cyber security, AI is a double-edged sword. The same technology that can cost insurers and insureds millions of dollars, enable theft of trade secrets, weaken reputational status and even jeopardize personal safety can help organizations combat the constantly evolving bag of tricks used by cyber criminals.

Protecting your business from cybercrime requires a cultural shift, said Geary. “Someone at the top has to prioritize awareness and solutions and make sure they permeate through the entire organization.”

Kelly Geary, U.S. cyber practice leader and managing principal, Integro

Cybercrime was previously the specialty of the “freelancer,” someone toiling away nights in a clandestine garage. But that’s shifted in the last 5 to 10 years, Geary said. Today’s cyber criminals are sophisticated, organized crime entities with call centers and often unwitting employees doing their dirty work.

“The motivation behind cybercrime is high,” Geary said. “It’s a mature and profitable business model. Organizations need to view this risk like a competitor and protect themselves vigorously.”

To get started, Geary said “organizations should ask questions that include, ‘What is important to us and what is our risk tolerance?’”

Armed with that information, organizations can create tailored, company-specific safeguards. “If leveraged properly and applied for a specific industry, AI can make it more difficult for cyber criminals to prevail,” she said.

Proactive steps also can help protect your organization from regulatory or civil litigation related to a cyberattack, such as the information breeches that plagued national retailers and a credit-rating organization.


Mackey, too, is a proponent of actively protecting one’s interests.  One very effective way to help combat cybercrime, especially practices such as spear-phishing and social engineering, he said, is to educate human workers to know the signs of these crimes and put in place safeguards and best practices for transferring money and information.

“Hold a mock spear-phishing campaign, during which employees are sent emails and have to decide whether to open them,” he said. Many large companies do this and successfully improve their employees knowledge and “don’t-open rate” for suspicious emails.

Employee training is key. In fact, a Poneman study found that “businesses that roll out training programs see improvements of between 26 percent and 99 percent in their phishing email click rates, with an average improvement of 64 percent.”

“Too many companies are not fighting fire with fire. They are responding in traditional ways to an increasingly sophisticated problem.” — Kelly Geary, U.S. cyber practice leader and managing principal, Integro

When facing changing liability scenarios, insurers and insureds can protect themselves by being very thorough in contract language. Choose your words carefully, because those words determine liability.

The same holds true for unknown risks. “I’d offer the same advice I do on any new risk,” Mackey said. “Pay ultra-close attention to the language. If there is a failure, how does the policy language affect you?”

“Too many companies are not fighting fire with fire,” Geary said. “They are responding in traditional ways to an increasingly sophisticated problem.” &

Mercedes Ott is managing editor of 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.


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.


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?


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.


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.


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]