Mergers & Acquisitions

And Back Again

Hank Greenberg, who made his first insurance deal in China in 1975, returns and buys a state-owned insurer.
By: | March 2, 2015 • 7 min read

The first time Hank Greenberg visited China, in 1975, there were few cars on the streets and seemingly thousands of wobbly bicycles crowding the roads. The high-rises that now dominate the skylines of China’s major cities were non-existent.

That was the way Greenberg remembered China in his 2013 book, “The AIG Story,” co-written with Lawrence Cunningham, a George Washington University law professor.

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Following the opening of Communist China in 1972 by President Richard Nixon and his Secretary of State Henry Kissinger, Greenberg — then CEO of AIG — sought and cemented during that 1975 visit a reinsurance agreement between AIG and the state-owned People’s Insurance Co. of China.

Greenberg was infamously pushed out of AIG in 2005, after four decades spent building it into a company with assets in the hundreds of billions.

Over the years though, Greenberg’s love of China, particularly Shanghai, never ebbed.

“I have very warm feelings for Shanghai,” Greenberg told Risk & Insurance® during an interview in his Park Avenue office.

After all, the C.V. Starr Co. was founded by Greenberg’s mentor Cornelius Vander Starr in Shanghai in 1919.

“China is not without its problems, obviously. But it’s the second largest economy in the world. Think about that. The second largest economy in the world in a very brief period of time,” Greenberg said.

Last year, Greenberg’s Starr bought a former state-owned insurance company, announcing that it had acquired 93 percent of the Dazhong Insurance Co.

“It wasn’t a walk in the park. It took a lot of negotiation and a lot of time.” — Hank Greenberg, CEO and Chairman, Starr Companies

Starr purchased approximately 20 percent of the company in 2011 before increasing its stake to 93 percent in March 2014, according to published reports.

“Even though we had management, we didn’t have freedom of management — big difference — and so I spoke with the people in Shanghai and over time we were able to convince them that the company would do better over any period of time if we had not only operating control but financial control,” Greenberg said.

The purchase was not without its struggles, according to Starr’s chairman.

“It wasn’t a walk in the park. It took a lot of negotiation and a lot of time,” said Greenberg. But Greenberg believes that over time, the investment will be well worth it.

Falling Barriers

With a population of 1.4 billion, China is viewed by many industries, property/casualty insurers included, as a country with enormous potential.

Recent regulatory changes, in particular the decision three years ago by Chinese regulators to allow foreign insurers to underwrite mandatory third-party auto liability, are viewed positively by Western insurance and business executives.

And those observers think more good news is on the way. “In and of itself it is a very critical step and it is clear that the intent is to broaden that further,” said Mark Wheeler, London-based CEO of Ironshore International, of that milestone third-party auto liability change.

“It was a major positive development for foreign insurers,” said Dave Snyder, vice president of international policy for the industry trade group the Property Casualty Insurance Association of America.

“We are very encouraged by high-level statements and are anxious, as always, to see them implemented.” — Dave Snyder, vice president of international policy for the Property Casualty Insurance Association of America.

Snyder said the trade group, which represents more than 1,000 insurers, continues to be encouraged by statements from Chinese government officials that they intend to open the country further to foreign insurance carriers.

“I’m reluctant to use terms like positive or negative. It is what it is,” Snyder said.

“But we are very encouraged by high-level statements and are anxious, as always, to see them implemented,” Snyder said.

“We believe there is an environment of honesty, if you will, between the governments and the private sector and the private sector and governments. That has improved significantly over time with benefits for both China and the U.S.,” Snyder said.

“It would also be fair to say that the market isn’t opening as quickly as we would expect,” Ironshore’s Wheeler said.

“A good example of that would be the much-heralded Shanghai Free Trade Zone,” he said.

Mark Wheeler CEO Ironshore International

Mark Wheeler
CEO
Ironshore International

“There was a lot of press coverage around that 12 months ago, but there is little evidence to see that it has driven much traction,” Wheeler said.

Starr and Ironshore work in partnership in some lines and sectors. Ironshore CEO Kevin Kelley is an AIG alumnus who retains great respect for his mentor Hank Greenberg.

Kelley told Risk & Insurance® in 2013 there was “no doubt in his mind” that if Greenberg stayed as CEO that AIG would have remained whole during the crisis of 2008.

The Starr Aviation Agency Inc. is the underwriter for Ironshore’s aviation products, and the two carriers have joined forces in the Iron-Starr Excess Agency, a managing general underwriting agency that underwrites financial lines and specialty casualty with both carriers providing capacity.

Wheeler said it looks like the Starr Group has skirted some barriers to entry with the Dazhong acquisition.

“An acquisition like the one they made makes every sense to me in that context. Just because of the barriers to entry, having something that is already laid out on the ground, with distribution lines and speed to market,” Wheeler said.

Regulatory and cultural barriers in China are falling, but there are complexities for property/casualty insurers to consider there, as there would be in any economy.

“Whilst the opportunities are significant, there are a number of key challenges to overcome, including complex regulatory hurdles, disparity in value, fit with local partners and the need to operate flexibly in a rapidly evolving market,” wrote Joan Wong, a transaction services partner with KPMG China in an April 2014 report by KPMG on the Chinese insurance market.

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For his part, Greenberg said he doesn’t see the regulatory hurdles in China as much more complex than those a carrier faces in the U.S., where a carrier needs the separate approval of regulators in 50 states.

“I don’t know if it’s any more difficult than the regulatory environment in the United States,” Greenberg said. “I don’t think so. I think they have their regulations like every country does.”

Combining Cultures

Greenberg said that since the March announcement, the process of combining the professional cultures of Starr and the Dazhong Insurance Co. is coming along, but will take some time.

“It has gone pretty well,” he said. “It’s not going to happen overnight,” he added.

Greenberg said he is devoting a lot of resources to training local hires as well as bringing in talent with experience working in the United States, London and elsewhere.

Hank Greenberg CEO and Chairman Starr Companies

Hank Greenberg
CEO and Chairman
Starr Companies

According to Alex Yip, CEO of Lockton Cos. for Greater China, the issues of regulatory compliance and integrating work cultures are of paramount importance for insurance companies that want to do business in China.

“It is, understandably, a challenge for a U.S.-based company to integrate its business with a local Chinese entity,” Yip said.

“The day-to-day differences are enormous, and include history, culture, corporate mentality, value propositions and ways of doing business, to name just a few common challenges,” Yip said.

“It is often underestimated just how different we can be from one another,” Yip said.

What’s also often underestimated, according to the analysts at KPMG, are the expectations of Chinese consumers.

According to KPMG, Chinese consumers are highly likely to use social media and other channels to communicate their expectations of and experience with service providers to their fellow consumers.

For the banking, general and life insurance sectors, around 70 percent of Chinese respondents to a KPMG survey recommended their banks and insurers to others. That’s compared to between 21 to 53 percent of those surveyed in other countries.

Although industry advocates hope for a day when foreign carriers can sell a variety of coverages to Chinese consumers and businesses online, Greenberg said there will always be the need for sophisticated underwriters and brokers in highly CAT-exposed China.

“It will never be adaptable to large, complicated risks,” Greenberg said of the online selling channel.

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“That will still be done through the brokers and companies that have the sophistication to write those kinds of risks,” he said.

“But there is an awful lot of business that can be produced online and through social media.”

There are barriers to entry in China and insurance penetration there is in its beginning stages.

But according to Greenberg, once that country of 1.4 billion becomes more of a consumer economy, it will take off, and the insurance business right along with it.

“Once China becomes less dependent on exports and more dependent on the domestic economy, it’s going to soar,” Greenberg said.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]