2018 Most Dangerous Emerging Risks

The Growing Insurance Gap Is A Serious Threat to Us All

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.
By: | April 9, 2018 • 13 min read

Amid discussion of presidential Tweets and Hollywood harassment, catastrophes dominated much of the news cycles of late 2017.

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It was a record-setting year. Irma was the longest-lived Category 5 storm in the past 50 years. Harvey set a new U.S. rainfall record for a tropical cyclone. October wildfires in California were the most damaging ever endured by the state. Globally, the overall tally for natural-disaster losses amounted to $330 billion, the second-highest figure on record — 60 percent of it uninsured.

Climate change, sea level rise, increasing global temperatures … these factors and more are increasingly impacting the frequency and intensity of catastrophe-level events. Growth in population and property values are exacerbating the severity of the losses.

“These events, if anything, are getting stronger and more frequent,” said Patrick Daley, Head of Large Property for The Hartford. Even normalizing for increased property values, “any kind of bar chart you look at over the last 40 years or so, demonstrates that.”

All of which makes the protection gap — the difference between total economic and insured losses — an area of great concern, in terms of the country’s ability to rebound from disasters, both physically and economically.

“You need look no further than some of the events we saw in 2017 to see that when you have higher penetration rates for properties that are insured, the recovery is significantly faster,” said Daley.

“That’s a very big deal, and it’s something we don’t talk enough about in the industry, something we can bring to bear and should be talking more about.”

The property insurance protection gap has risen steadily over the past 40 years. In the past decade, cumulative total damage to global property as a result of natural disaster events was $1.8 trillion. At least 70 percent of those losses were not covered, according a 2015 Swiss Re study titled “Underinsurance of Property Risks: Closing the Gap.”

In the U.S., the problem is felt most acutely for special perils such as flood or earthquake coverage. In the event of a mega-earthquake along the San Andreas fault, experts warn that only 9 percent to 13 percent of properties carry earthquake coverage.

A dramatic example of the flood protection gap is still playing out in Texas. Less than 20 percent of homes in the Houston area were covered for flood when Harvey hit.

Nationally, there are more than 29 million properties that are at moderate to high risk of flooding, but are not subject to mandatory flood coverage because they fall outside of Special Flood Hazard Areas, according to a CoreLogic analysis. More than five million of those properties are in Florida — more than half (54 percent) of the state’s total properties. Texas and California each have three million properties at risk. Arizona is far smaller, but 68 percent of its properties are at risk, as well as 49 percent in Louisiana.

Trouble in the Gap

Some are tallying the combined losses of Harvey, Irma and Maria at up to $250 billion. Scientists are already predicting that the 2018 Atlantic hurricane season will be a repeat of 2017 — or worse.

California mega-quake losses are more speculative. For an 8.2 quake, some say a figure close to $300 billion isn’t out of the realm of possibility.

Tom Larsen, principal of industry solutions, CoreLogic.

“Two or three times what happened in Harvey is a likely outcome,” said Tom Larsen, principal of industry solutions at CoreLogic. “It’s tragic, it’s big numbers, it will be very disruptive.”

Modelers have shown how an 8.2 quake could cause a length of the San Andreas fault to rip open like a 300-mile-long zipper running from the Salton Sea to Paso Robles, displacing the earth by 30 feet in a matter of seconds. All of Southern California would be hit hard at the same time.

At particular risk is the Los Angeles basin, where millions live atop a surface of mostly gravel and sand. The U.S. has never suffered a quake of that magnitude so close to a major city. The loss of life would be devastating, and the physical destruction – most of it uninsured – overwhelming.

Historically, the rate of uninsured residential losses sits consistently around 70 percent for natural disasters. The commercial gap is less acute but still problematic.

The largest commercial property owners might be adequately insured for a catastrophic loss, especially if their lenders require it. In the event of quake damage, they’d also be better able to absorb the high deductible of an earthquake policy. But many small and medium sized businesses in high-risk regions roll the dice and take their chances without the coverage they need, or carry limits too low to facilitate recovery.

The government aid needed for public infrastructure rebuilding, aid to individuals and disaster loans to businesses is increasingly high. For the next extreme high-severity event, it’s possible that supplemental appropriations by Congress could exceed the $43 billion spent in 2005 after Hurricanes Katrina, Wilma and Rita.

So if the government is footing the bill for infrastructure recovery, and insurers are paying claims for the comparative few who were adequately covered, what about the rest? Private loans might take up some of the slack. But with large portions of a region’s population displaced – in some cases permanently – incentive to rebuild or repair could be low. Businesses able to physically rebound will still suffer the loss of customers and suppliers unable to do the same.

“I think most people figure, if something that big happens, either I’ll walk away from my house and let the bank have it, or I’ll take out a loan.” — Michael Korn, managing principal and practice leader for property and marine, Integro Insurance Brokers

Rebuilding efforts, particularly for damaged infrastructure, will help offset job losses and spur growth. But the effect on residential and commercial construction will not be as robust as it might be in areas with higher insurance penetration.

The road back for an affected region is often slow, especially with high levels of uninsured losses. The rest of the country is impacted as well.

Consider the hypothetical 8.2 earthquake. California is the largest contributor (13.3 percent) to the U.S. economy, with $2.44 trillion in economic output. The state’s agriculture sector alone is a $45.3 billion dollar industry that generates at least $100 billion in related economic activity. Prolonged disruption of that economy could ripple across numerous industries. There is no precedent for a catastrophic earthquake near a major business center.

Trade pipelines would suffer. Around about 20 percent of all U.S. imports come through the Port of Los Angeles, said Martha Bane, managing director, Property Practice, Gallagher. “The supply chain would be significantly impacted … you may not be located in Southern California, but that one part of that widget you’re manufacturing may be here.”

The Ripple Effect

After Hurricane Harvey, $30 billion of securitized commercial mortgages landed on the watch list of analysts and investors worried about the risk of defaults. Of greatest concern were the properties uninsured for flood, as well as rental properties inadequately covered for business interruption or contingent business interruption losses.

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That scenario would be magnified after a catastrophic earthquake, creating a destabilizing effect on financial markets.

The greatest threat to security markets “is not so much the damage but the uncertainty coming out of the damage,” said economist Barbara Stewart at a Washington, D.C. forum titled “Economic Consequences of a Catastrophic Earthquake” held by the National Research Council Committee on Earthquake Engineering.

“If there is anything financial markets cannot stand, it is uncertainty. They can deal with good news, they can deal with bad news, but uncertainty is the worst.”

That’s especially true if it causes businesses and governments to postpone financing for critical projects for an indefinite length of time.

Said Stewart, “What is the cost of the things that are not done, the projects that are not built, the activities that are not undertaken?”

In Search of Solutions

Increasing insurance penetration for perils like flood and earthquake will spread the risk and make coverage more affordable, but that’s easier said than done.

The nonprofit California Earthquake Authority (CEA) has seen an uptick of interest in the past two years, and recently surpassed one million policies. But the state’s population exceeds 37 million, most of whom live within 30 miles of an active fault, according to CEA.

Michael Korn, managing principal; practice leader for property and marine, Integro Insurance Brokers

For California homeowners, going without the coverage is simply the smarter financial move. “It’s incredibly expensive,” said Michael Korn, managing principal and practice leader for property and marine, Integro Insurance Brokers – and a California homeowner. “The deductibles are very high, and I think most people figure, if something that big happens, either I’ll walk away from my house and let the bank have it, or I’ll take out a loan.”

Unfortunately, many property owners assume that FEMA will always be there to help them rebuild. Pre-Katrina, federal spending amounted to about 26 percent of the total costs. Post-Katrina, that figure shot up to 69 percent and has remained high.

“Right now we just rely on the federal government and its grand largesse,” said Larsen. “Except that these big events are starting to [spark] bigger discussions in Congress about how much money they can continue to set aside to pay for this. So [even though] the government has always jumped in on lesser events — will it be able to jump in on the bigger events?”

The U.S. is not alone in that kind of narrow thinking, said The Hartford’s Daley. There are plenty of other countries whose citizens assume that when push comes to shove, the government will step in and save the day.

But the reality is that “over time, I think we’re going to see less and less of that — especially with some of the economic turmoil we see in other parts of the world. They may not have the wherewithal to do that.”

With the frequency and severity of disaster events increasing, the topic will need to be addressed. In 2007, the National Bureau of Economic Research published a report that concluded “Given the current approach to disaster relief funding, we project an ‘unfunded’ liability for disaster assistance over the next seventy-five years comparable to that of Social Security.”

Many believe that it is finally time to push the boundaries of mandatory coverage further. Thompson (Tom) Mackey, risk management consultant, EPIC Insurance Brokers and Consultants, said that for earthquake, a backstop program similar to the National Flood Insurance Program would be a start.

“I think that would really be the only way to adequately address the risk,” he said. “Ultimately, society pays for it either way. So do we do it upfront in a fair and controlled manner? Or do we do it after the fact, when we have to open up the government coffers, and borrow money from the global financial marketplace. It’s one of the two. Either way we have to finance the risk. Doing it proactively makes the most sense.”

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“The great part about that is … it’s about the law of large numbers. If you require everyone in a certain community or certain areas to buy that insurance you avoid things like adverse selection,” added Daley.

But coverage only addresses part of the problem. Compounding the severity of uninsured risk is that those reluctant or unable to obtain policies are probably not spending money on mitigation efforts either. It’s hard to justify an investment that you may or may not ever see a return on it.

Regulations are a key factor, including more stringent building codes that address exposures. Los Angeles and other California cities have passed sweeping laws requiring owners to retrofit some of the most vulnerable commercial properties. But in the absence of laws, property owners often have little incentive to be proactive.

Proposals have emerged in recent years that tie mitigation to coverage for property owners in disaster prone areas.

“Ultimately, society pays for it either way. So do we do it upfront in a fair and controlled manner? Or do we do it after the fact, when we have to open up the government coffers, and borrow money from the global financial marketplace.” — Tom Mackey, risk management consultant, EPIC Insurance Brokers and Consultants

One idea is to offer five- to 10-year policies, attached to the property rather than the individual owner. Policies would transfer with ownership, and premiums would be lower for properties with loss-reduction features. Insurers would partner with mortgage lenders to offer low-interest loans for resilience upgrades.

There’s little down side. Banks benefit from reduced risk of loss to the property. Insurers reduce potential claim payments. Property owners benefit from added value when marketing the property to future buyers. And taxpayers take on a smaller share of the burden of disaster relief. Wins all around. But so far, that’s just a concept.

For earthquake exposure, most carriers already do offer premium discounts to policyholders — both commercial and residential — who seismically retrofit their properties.

CEA also partners with the Governor’s Office of Emergency Services to operate the Earthquake Brace and Bolt Program (EBB). EBB offers retrofit incentives of up to $3,000 to homeowners with properties built before 1979.

Tom Mackey, risk management consultant, EPIC Insurance Brokers and Consultants

Continued innovation is needed. Some companies are working to address the key pain points of slow payment and coverage gaps. Swiss Re now offers QUAKE, a parametric product triggered by seismic measurement. QUAKE provides ready cash for immediate needs of public entities and corporations, particularly for expenses not covered by insurance or federal relief funds.

It’s a useful tool for planning ahead to meet a high deductible, said 2018 Power Broker® Alexandra Glickman, area vice chairman at Gallagher and managing director and leader of its Global Real Estate & Hospitality Practice. “It’s not in lieu of earthquake insurance,” she said, but it is an affordable supplement.

A company called Jumpstart is working to launch a parametric earthquake product for individuals. Such a product already exists for hurricane exposure. Assured Risk Cover’s StormPeace offers payouts based on pre-agreed conditions of strength of a hurricane and its distance to the property, even if the storm does not make landfall.

Swiss Re’s 2015 underinsurance report noted that insurers can play a vital role in strengthening the resilience of households and companies against property risks.

“Product and distribution innovation, and measures to handle accumulation exposure will be critical to help society better manage the risks,” said the report. “So too will be developing data and analytical tools to better understand the exposure.”

Investing in Mitigation

But the report emphasized that insurers cannot act alone. Public-private partnerships can help close the protection gap where insurability is limited, and governments need to provide strong regulatory environments, “set and enforce building standards, and promote mitigation to reduce risk exposures.”

“I certainly think it’s in everyone’s interest — insurance companies and society in general — that the insurance industry find ways to invest in mitigation,” said Daley. That includes working with government to set and enforce building codes, he said.

“We see time and time again …  why is it that a storm with the same ferocity will have different impacts going through Florida than it does in certain places in the Caribbean? Building codes play a large role.”

Daley said that during visits to Bermuda, he notes with interest that many of th3e residences have been constructed to withstand significant wind exposure. “So when storms hit Bermuda, you won’t see the same type of impact that we saw coming out of some of the events of 2017 in places like Puerto Rico,” he said.

The industry has much more to offer than risk transfer alone. Advice on retrofits and other mitigation efforts is an area where carriers can impact the severity of claims, said Integro’s Korn.

“The insurance industry has the expertise, experience and qualifications to guide a lot of mitigation and preparation,” he said.

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“The key element to finding better solutions is to not look at the problem too much just through a technical, actuarial product management lens, but really start with the consumer, whether it’s an individual policyholder, whether it’s a government,” said Edi Schmid, group chief underwriting officer for Swiss Re, while attending the reinsurer’s April 2017 event “Catastrophes — Protecting the uninsured: Solutions for a Resilient World.”

“It’s really important to understand their needs, how they think about risk, what touches them emotionally, what’s important for them, and build something around that.”

Carriers are well positioned to offer comprehensive disaster risk assessments and help risk managers create recovery plans, said Korn. That might mean meeting emergency needs like backup power and water, but also longer-term concerns like customer and supplier loss.

“You need look no further than some of the events we saw in 2017 to see that when you have higher penetration rates for properties that are insured, the recovery is significantly faster,” — Patrick Daley, Head of Large Property, The Hartford

“[Insurance carriers] have loss prevention and loss control engineers and business continuity experts — mitigation experts that should be more a part of the insurance purchasing transaction. Some insurers provide them, and many more should be.

“I think maybe there’s just too much a reliance on the idea that if we buy $1 million worth of earthquake [coverage] we’re set.

“That’s wrong. You need to be thinking about [making] whatever loss you suffer as low as it can be. Whatever’s left over, that’s when you should think about insurance.”

The Hartford’s Daley agreed. “Insurance is one part of it, but we know that’s not all of it. I think, ultimately, the insurance industry has a role to play in helping an underwriting management company, customers and society better understand these types of risks and better prepare for them.” &

Michelle Kerr is associate 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.

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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 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.

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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]