Risk Managers

Dear Risk Manager, You’re Driving Me a Bit Crazy. Signed, Your Broker

From conducting marketing competitions, to failing to use their broker as a strategic partner, these are the ways risk managers stress brokers.
By: | August 2, 2018 • 8 min read

In early July, we published a piece called 9 Things Brokers do that Drive Risk Managers Crazy.  Now some veteran P/C commercial brokers, including three multiple-award winners, weigh in with the 13 things risk managers or their companies do that sometimes make brokers scratch their heads.

1)  Conducting multi-broker quoting competitions.

I think people tend to treat arranging insurance like shopping for a new car or getting estimates to paint the house. But it’s a complex subject that has many nuances and a language all its own.

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The issue that I have is that a market competition tends to place greater emphasis on the going-in cost — what the premium’s going to be — than it looks at qualifications to manage the organization’s long-term total cost of risk.

Insurance premiums are frankly the tip of the iceberg if you’re thinking in terms of total cost of risk.  When you execute a broker quoting competition, I think it risks sending mixed messages in the marketplace, because you’re going to have different intermediaries that are each presenting the risk in their own way.”

— A multiple Power Broker award winner

And tacking onto that…

“When insurance is viewed as a commodity, the deciding factor is price, not value.”

— A winner of the Risk & Insurance® Risk Innovator award and Power Broker award, whose clients have also been named Risk All Stars

2) Moving the goal posts.

 I am sure most brokers want to do a great job for the customer.  You say, okay, what’s the goal and what’s the renewal strategy? They say, ‘We’ve had some losses but if we could hold to a flat rate that would be awesome.’

Stop moving these around.

And we’ll say, ‘Okay flat rate outcome’ and then we do everything to get to a flat rate. Then they say, ‘Oh by the way my CFO needs a ten percent reduction.’

You took your shot with the carrier and you did everything you could to get this great outcome and then nobody’s happy. The carrier’s unhappy, the client’s unhappy, you’re unhappy.

The really effective risk managers know what leadership is going to be looking for, they know internally what is being expected and what is being budgeted and then everybody is aligned.”

A multiple Power Broker award winner

3) Thinking the risk manager’s interests are perfectly aligned with the carrier’s.

“The carriers will suck up to the clients and they might present something like ‘we did this just for you Mr. Risk Manager.’  But the clients that deeply believe they can do everything directly or without us are just wrong, to be honest.  We have a lot of juice with these carriers.  The relationships are big and important. And I’m not just saying big brokers.

Good brokers, that have the relationships and are experts in their field, get better outcomes.  The clients that believe that all of their interests are aligned with the carriers?  It’s just nonsense. The carriers will make more money if they don’t pay claims.

This “Oh, we’re all on the same page and we’re such happy partners and we want to go to their gig in Florida and all of this stuff and we are on their advisory board and I just love this carrier.  Well, you know, you can have a relationship but don’t think that your interests are aligned.”

“Some of the clients are so convinced that they can do that better than us. The reason the carriers find the brokers so annoying sometimes is that we are such steadfast advocates for the clients. Sometimes clients will be talking to carriers directly and undermine their own best interests.  ‘Oh we can live without such and such and so and so.’ And it is just like, ‘Why would you do that?’ ”

— A multiple Power Broker award winner

Adding to that sentiment: “Being too busy to find time to meet but willing to make time for golf/dinner/booze/cigars.”

— A broker with more than 28 years’ experience in insurance and risk management

4) Missing the big picture.

 “So many buyers obsess over the going-in premium. I’m not denying that everybody needs to manage cost. But when a buyer focuses so heavily on premium, they may underestimate other direct costs, such as deductibles or self-insured retentions.

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Or coverage exclusions and limitations that create gaps in protection.  If the buyer skimps on the limits they buy and then has a big settlement or judgment that outstrips the insurance, that’s a direct cost.  And if that buyer doesn’t spend enough time managing its loss costs and hemorrhages from claims, that’s going to drive future insurance pricing.”

— Multiple Power Broker award-winning broker

5) Providing sloppy or incomplete data.

”You work really hard to get good deals for them and they say, ‘Oh by the way, our exposure data was wrong.’ And then everything goes out the window.”

“Not being honest about loss history & details.”

“Withholding Property COPE details – Construction, Occupancy, Protection and Exposure.”

— Multiple brokers

6) Not leveraging their broker as a strategic partner.

“We’ll have clients come to us and say, ‘Oh look, we entered into this contract; would you review it? Does our insurance apply here?’ Once the thing is already inked and baked, it’s too late. We brokers need to be at the table when the buyer — the policyholder — is considering any kind of a new initiative, whether it’s a contract, an acquisition, a divestiture. Maybe the organization’s thinking about building something — construction or a renovation — or maybe it’s entering a new area of operation. That’s when we need to be at the table: in the planning stages.

Insurance is really the icing on the cake, you buy that as a complement to everything else that you’re doing to manage risk, so that you can hopefully sleep at night.”

7) Moving too slowly and not appreciating how much time it takes to get some things done.

“Obviously things change. You may have had the merger or the acquisition right before renewal that changes things.  But clients will say I want my policy in 60 days or I want it within 30 days of the renewal but then they give us the data at the last minute. We can’t do it.

Please give us good data well in advance and communicate to us what the goals of the firm are. Open communication, good quality data, and doing things earlier rather than later.”

“Slow response time on critical issues. A lack of understanding of all the steps necessary and that it’s really only once the risk managers gives the answer that the whole process starts.”

— Multiple brokers

8) Aligning with generalists.

“I think it would be great if more buyers would look at the value of specialization. You look at surveys about any industry or professional service and the number one attribute is, ‘We want to work with somebody who understands our business.’

Everybody says that. Well, it should follow that the broker who’s spent the time to really go deep, and understands the strategic landscape of the buyer’s industry, is going to bring much greater value to the table than the generalist.”

— Multiple Power Broker award-winning broker

9) Risk manager isn’t empowered.

“I go into a lot of organizations — Fortune 500s — and I basically get a chance to go in and see what’s right and wrong in the organization, how they are structured and what their culture is like. And one of the big things I see is that a lot of times the buyer isn’t empowered at all.

They don’t have the budget they need to hire the right people. You may have a great idea on how to save them millions of dollars and they might totally agree with you.  But they just aren’t being funded properly enough by their organization. They may lack the political capital that is needed to effectuate change whether it is cultural, or spending money.

— The head of claims consulting for a top five brokerage

10) Heavy internal silos.

Along those same lines what I see a lot when I go into these companies, there are heavy silos in there.  If you ask me what are the things that drive me crazy about buyers it would be that and the buyer would admit it, they are siloed sometimes.  Sometimes the buyer is reporting to treasury and sometimes the buyer is alone in risk management.

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Sometimes they are reporting to HR even. A lot of times you go into a company and safety is on one side, claims on the other. You go in and try to effect change and safety is running the show, or HR is running the show and it is really hard to get people to consensus. It’s something we have to work with. You have to go in and realize that most companies do have some kind of silo going on internally.

— The head of claims consulting for a top five brokerage

11) Inadequate staffing. 

Every time I do a risk process optimization, I go off and look at the clients. They want to know are we adequately staffed?  You know they’re not. They know they’re not. But you can’t explain to finance why an extra head count is needed. And that’s really hard. There is no one study to show, if I hire one person, will my losses get better internally in the risk management department. We try to make a business case and say well these people worked in these six programs and each will work 200-300 hours will save this much money and there’s our ROI. But that’s really tough to do.

It’s tough when buyers are inadequately staffed. And because they are inadequately staffed the people they do hire, and we see some great people at our clients, but of them are not as seasoned as you would find at a TPA or a broker or a carrier. Many times they don’t have that insurance background, because our risk managers are inadequately budgeted and they can’t hire the top-tier talent in the industry.

— The head of claims consulting for a top five brokerage

brokers deserve a beer

12) Not appreciating the effort it takes to get certain things done.

 

13) Not even buying their broker a beer! &

Buy your broker one of these. They probably deserve it. 😊

 

Dan Reynolds is editor-in-chief of Risk & Insurance. He 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]