Here’s How to Avoid Losses in a $10 Trillion Construction Industry

By: | February 14, 2019

Rick Falcinelli is Vice President of Global Marine Risk Engineering at Aspen, where he provides risk engineering and loss prevention services to internal and external Inland and Ocean Marine clients globally. Rick also conducts risk assessments, technical reviews, site visits and surveys, and makes recommendations to improve our clients’ safety performance and profitability. Prior to Aspen, Rick was VP & Senior Manager, Marine Risk Engineering, with Liberty International Underwriters and EVP at K-Sea Transportation Partners L.P. Rick holds a Masters degree in International Transportation Management from SUNY Maritime College and is a NAMS Certified Marine Surveyor.

According to the McKinsey Global Institute, the construction industry is one of the largest sectors in the world economy, with approximately $10 trillion spent on construction-related goods and services every year, representing 13 percent of the world’s GDP[1]. Off-Highway Research recently reported that global construction equipment sales are expected to increase by 12 percent in 2018, translating to nearly one million units in total sales and almost $99 billion in total retail value of sales.

Industry experts attribute this growth in worldwide construction-related goods and services to such factors as an expanding population coupled with the global rise of aging infrastructures and rapid urbanization.

While this bodes well in terms of healthy sales for the segment, construction companies and contractors of all sizes need to recognize that with additional business volume comes increased risk of accidents and equipment damage. This article focuses on three major categories of equipment damage, addresses their risk factors and suggests controls to mitigate exposures.

Fighting Fire With…

Fire is a major cause of loss throughout the contractor equipment segment. Fires may occur at job sites and staging areas, damaging or destroying the equipment that is located there, or a fire could ignite on the equipment itself from a variety of sources.

Some of the more common hazards include: operating equipment around dry brush, trash or other flammable materials; storing equipment in buildings constructed of combustible materials and lacking fire protection; improper storage of flammable materials; careless smoking; and hot work. Equipment-related fires can result from electrical shorts, fuel or hydraulic leaks, overheating and unprotected exhaust systems.

There are several commonsense ways to lower the risk of fire loss to your equipment.

The most important of these is frequent and thorough inspections of job sites, facilities and equipment, followed closely by an effective, preventive maintenance (PM) program. Properly conducted inspections identify the hazards noted above and provide a system for documenting and tracking corrective actions.

And, PM programs help maintain equipment reliability and safety by providing fleet and equipment managers with a means for scheduling and tracking maintenance and repairs according to service hours, miles or other conditions established by the manufacturer.

One of the most basic but frequently overlooked preventive measures is to outfit all vehicles and heavy equipment with portable dry-chemical fire extinguishers and to train employees in their use.

Extinguishers should be included on inspection checklists to ensure they are ready for use and have not been damaged or accidentally discharged. This simple practice alone can make the difference between a relatively minor incident and a major loss.

The project manager or site supervisor has overall responsibility for the condition of the site and equipment and for ensuring that employees comply with key safety policies. This individual must also make certain an emergency response plan is in place, including after-hours notification procedures and contact information for security personnel. The plan should be re-evaluated periodically throughout the duration of the project as risk factors may change.

Water, Water Everywhere  

Project sites with contractor equipment may be exposed to heavy damage from named windstorms and accompanying storm surge, and a detailed hurricane plan should be in place for areas prone to tropical storm activity.

When a hurricane is approaching, early efforts should be made to move as much equipment as possible to a safe location out of the storm’s path, although this is not always possible. Equipment remaining on site must be moved to higher ground and well-secured, including lowering or dismantling booms and other appendages. Smaller equipment, tools and materials should be tied down or stored in trailers to prevent them from being turned into projectiles in high winds.

One of the most basic but frequently overlooked preventive measures is to outfit all vehicles and heavy equipment with portable dry-chemical fire extinguishers and to train employees in their use. Extinguishers should be included on inspection checklists to ensure that they are ready for use and have not been damaged or accidentally discharged. This simple practice alone can make the difference between a relatively minor incident and a major loss.

Changing weather patterns and dense development have created vulnerability to flooding in areas that have never experienced such events previously. Heavy rains can quickly overcome storm water drainage systems, causing widespread flash flooding and extensive damage. While it is not always possible to anticipate these events, experienced contractors should be mindful of low-lying storage locations and monitor weather alerts to take appropriate action.

Identifying the geographic risks and creating an emergency plan should be a construction company’s first line of defense in mitigating site and equipment damage. Additionally, employees working at the site should be trained on where and how to store equipment so they know which steps to take to help reduce the impending threat.

Overturning the Odds to Your Favor  

While in operation, contractor equipment can sustain damage in a variety of ways: Colliding with other equipment or structures on the site; being struck by falling trees or debris; exceeding rated operating capacities; becoming mired in marshy areas; or coming in contact with buried utilities or overhead transmission lines.

Many large losses are caused by upset or overturn of equipment. These cases result most commonly from machines working on inclines, where they either slide into other objects or roll over. Prevention of overturn incidents rests entirely with the operator, their assessment of the situation and knowledge of the machine’s limitations.

Newer operators who can operate safely on flat terrain may quickly get into trouble working on a slope without proper training and oversight. Upset/overturn cases may also occur when a machine loses its footing due to a trench collapsing. Again, operator training and experience combined with safe work practices can help prevent these types of incidents from occurring.

The occurrence rate for contact damage is typically higher for equipment used in demolition and land clearing operations than for construction and excavation. There also may be a higher contact damage claim rate with rental equipment providers, particularly for what operators may perceive as “minor” cosmetic damage (dents and scratches). Rental companies conduct stringent off-hire inspections and will claim for any and all damage found.

The Bottom Line

Worldwide sales of construction-related goods and services will continue to rise as more projects get underway.

That said, brokers and carriers have a golden opportunity to bring intrinsic value to the planning table and drive optimal results for clients through collaboration, risk engineering, education and creative solutions. Helping clients understand the causes of equipment damage and its loss patterns will lead to control strategies, many of which are low cost and can be implemented quickly and easily.

And, providing this type of guidance in a growing sector will lead to improved risk selection and renewal strategies, as well as improved policy terms and conditions. &

[1] McKinsey Global Institute, Reinventing Construction: A Route to Higher Productivity (McKinsey & Company, February 2017)

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 and 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]