Project Cargo

Project Cargo: Bigger is Beautiful

The project cargo business is back on the increase after a period of the doldrums.
By: | May 1, 2014 • 8 min read

After years of declining activity, the project cargo risk management business is back on the move, with carriers expecting growth opportunities going forward.

Project cargo involves the movement of large, heavy, valuable goods, often over vast distances, and usually on specialized trucks, trains, aircraft, or vessels. Energy is a major client, as in oil rigs, wind-turbine blades, turbines, and refinery processing units.

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Infrastructure is also a fast-growing segment, especially in Asia, Africa, and Latin America. Major losses are rare but represent a double whammy to owners and underwriters: The components themselves are often custom-built and can be worth many millions of dollars. Beyond their inherent value, the damage or loss of big project pieces can cost many times their replacement value in project delays and business interruption.

The size of the global project cargo business varies with economic activity, governmental spending, and infrastructure development, said Steve Weiss, Latin American marine manager and vice president of marine engineering and project cargo for Liberty International Underwriters.

“There are years when the global book would exceed $100 million in total premium and years where this would be much less,” Weiss said.

“Prior to 2008, the project cargo business was very busy globally; 2008 to 2011 showed a dramatic slowdown except in some of the developing countries like in Latin America, as the need for power was great. The market is on an upswing due to lenders getting back in the market and pent up demand. We expect a growth in project opportunities in the next few years.”

Steve Weiss, vice president of marine engineering and project cargo, LIU.

Steve Weiss, vice president of marine engineering and project cargo, LIU.

As business grows, lead underwriters remain focused on the skills of the contractors both on the procurement and transportation ends of the business. “We focus our engineering and underwriting efforts on the long lead, critical items that could most affect the project timeline,” said Weiss. “The critical item moves are the things that keep underwriters up at night.”

Innovation in this market is typically focused on policy wording and the day-to-day management of the account.

“One service enhancement is the ability, with mobile devices, to support the client directly in the event they forgot to notify us of a critical item move.  With a series of photos or other documentation, we can often forgo a survey and enable the client to not incur any delay,” Weiss said.

Follow the Leader

Capacity needs of larger projects require more than one insurer to cover the project. There are often three or four other underwriters — sometimes up to twice that many — that are known as slip carriers or following players, that will take a smaller percentage of a cover on a subscription basis.

In those cases, they are truly subscribers or followers; they underwrite the lead carrier’s capabilities with respect to underwriting, risk management, or claims handling before they sign on to the slip with a following position. They get a check for their percentage of the premium, and if there is a claim they write a check for their percentage.

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Carriers said the arrangement suits them well. The followers like to have operators like Liberty Mutual, Allianz, or a few specialized underwriters such as Coast Underwriters lead the project. They have the size and expertise.

The leads like to have the followers, which can be large underwriters themselves, to boost capacity. The covers in project cargo can be extremely large, and are often placed in conjunction with a major construction project, so there is usually some coordinated coverage.

“There are many carriers active in the project cargo market, but only a very limited number that will act as lead underwriter,” said Kevin Wolfe, global head of project cargo at Allianz Global Corporate & Specialty.

“That is because the loss-control and risk-management aspects from underwriting through the project require more assets and capabilities than most carriers wish to allocate to this business segment.”

There have been some recent important shifts in the global project cargo business. Instead of being built on site, many structures — say, for a bridge — are built in modules and shipped.

That means that frequency of project-cargo shipments is increasing, as is the total insured value. Loss frequency is still low, but underwriters said the rising value of shipments means the risk of loss is also rising.

“A cargo of steel is worth one thing, but a bridge section could be worth $400 million and weigh 1,000 tons,” said Wolfe.

As noted, a bigger problem would be project delays.

“We are not just talking about the cost to refabricate the component,” said Wolfe. “Maybe the heavy-lift ship or aircraft is not available again for six weeks after the new completion date. Maybe the utility building a new power plant has contracts to supply power from it, and now has to buy power until the delayed generator can come on. The equipment can cost $40 million and the delay to refabricate, ship, and commission, including lost business and other costs, can be 10 times as much.”

Beyond energy and infrastructure, project cargo can get exotic, said Michelle E. O’Donovan, national product line director at International Marine Underwriters/OneBeacon, based in New York.

“We were involved with the movement of the Space Shuttle Enterprise to the Intrepid Museum in New York. In addition to project cargo transportation, carriers require special liability coverage too when moving project cargo. Even the military has need of project cargo. For example, the movement of submarine parts down river by barge to Newport News [Va.].”

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O’Donovan added, however, that “not all project cargo involves $100 million in limits done by the major project-cargo players. Many are successfully handled by other marine insurers. Due to the competitive nature of our market and with some inexperienced carriers writing project cargo, some brokers have modified the terms to expand coverage. Some new markets have accepted changes to the standard project cargo and delay-in-start-up clauses while others continue to write business on market standard terms.”

Among the few underwriters that take lead positions in project cargo, Coast Underwriters, based in Vancouver, British Columbia, might seem like a fighter punching above his weight, but the company is a subsidiary of the RSA Group, based in London. Kevan Gielty, president and CEO, relishes his company’s ability to consider a wide range of project cargo business.

“To be effective, we look to write all of the risk or at least lead. If we take a following position, then we are very careful who we choose to follow, as we have to then rely on the risk management of the lead underwriter. There are two keys to the ability to lead on project cargo,” said Gielty: the technical expertise and breadth to handle the underwriting, and adequate capacity.

“If you are bringing $5 million or so of capacity, you have little influence on a potential deal. Our capacity on any given project can be in the $50 million to $100 million range. Risk management is essential, because of the size and weight and complex challenges in this business.”

Coast has two risk managers on staff, and Gielty said they stay busy.

“You can only be profitable in this business if you write.”

— Kevin Gielty, president and CEO, Coast Underwriters

“There is always something new in the proposals that come across our desks. As the underwriter, we set the price, but we rely heavily on our risk managers because damage or loss to a covered move is often not the worst hit, often it is the consequential loss, the business interruption.”

The best way to ensure losses are kept to a minimum is “to survey each project, each move, each lift to death,” said Gielty, “but that is just not cost effective. This is a very competitive market. That is why you need different horses for different courses. If we are writing a rail move, we have to know more than just the bridge weights and tunnel clearances. We have to know speed, elevation, inline, even the season and the right-of-way.”

In spring, for example, soggy ground can shift so a track weight limit might be compromised.

One insight Gielty offered is that “in this business, you have to listen to the insured. They are the ones making the move, they know their business. You don’t have to understand every single detail of their business, as long as you know that they know every detail of their business.”

Kevin Gielty, president and CEO, Coast Underwriters

Kevin Gielty, president and CEO, Coast Underwriters

That said, the old adage that “ya gotta know the territory,” is especially true in project cargo. In one recent case, a surveyor noticed a crew lashing an ocean-going cargo with nylon straps, when the shipment required chains; the change was made and the cargo shipped safely.

In another instance, a client had two large turbines coming from overseas for a new power generating station. They were large and heavy, but not so much that they could not have travelled on the same vessel.

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That would have saved some money but Gielty said his risk managers, in consultation with the client, decided to ship them separately.

“If at least one turbine was delivered on time in good condition, then the plant could operate at reduced capacity versus both being damaged in a single incident. The decision illustrates comprehensive risk management: time, money, probability, and contingency planning.”

As an underwriter, Gielty takes a broad approach to his job, and the way Coast makes money.

“You can only be profitable in this business if you write,” he said.

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. 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 an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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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]