Higher Education

Recipe for Claims: Frats and Booze

The stubborn embrace of alcohol by fraternities remains a prime source of expensive and potentially avoidable higher education claims.
By: | June 19, 2017 • 6 min read
Topics: Claims | Education | Liability

The insurance industry can and should exert its considerable financial influence to inhibit campus binge drinking, said Doug Fierberg, a Washington, D.C. attorney who represents victims of campus malfeasance.

Schools and their insurers could impose a single policy change — banning alcohol in fraternity housing — that would reduce, without cost, the risk of on-campus injury and death by 75 percent, and severity by more than 90 percent, said Fierberg, author of To End Fraternity Hazing, End Boozing First, published in 2012 in the Chronicle of Higher Education.

Doug Fierberg, partner, The Fierberg National Law Group

Most schools have written alcohol policies that abide by applicable laws, distributed to freshmen at orientation and thereafter ignored, Fierberg said.

That’s reasonably manageable in on-campus dormitories, which are usually owned by the institution, supervised by resident advisors and subject to campus and municipal policing.

Fraternity houses, however, are usually owned by their respective Greek organizations, often have no supervisory adult on the premises and are off-limits to campus police except under exigent circumstances.

Managing frats isn’t so easy, said Leta Finch, national leader, higher education practice, Aon Risk Solutions. “When an institution has a close relationship with a fraternity and can manage what goes on in its house, the insurer has greater leeway in terms of coverage, premiums and exclusions.”

“We suggest administrators ask, ‘Where are your reports coming from on Saturday night? A concert? A Greek house?’ Those are where risk managers need to focus.” — Mike Krackov, senior claims counsel, United Educators

In the absence of a close relationship between school and frat, however, the school creates an arms-length relationship with the fraternity, especially with regard to the liability associated with alcohol consumption, she said.

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A 1993 Harvard study found that 44 percent of college students binge drink, defined by the National Institute on Alcohol Abuse and Alcoholism as five or more drinks in about two hours for men, four or more for women.

Recent studies find that more students are partying harder now, “pre-gaming” and choosing hard liquor over beer. Many drink to the point of blacking out.

The Harvard study found students drank more on campuses with a strong drinking culture, few alcohol control policies on campus or in the surrounding community, weak enforcement, and easy accessibility through low prices, heavy marketing and special promotions.

Frats and Booze

According to a more recent Harvard study, fraternity residence or membership is the strongest predictor of binge drinking, and four of five students who live in fraternities are binge drinkers. Sororities no longer permit drinking on their premises.

Leta Finch, national leader, higher education practice, Aon Risk Solutions

The NIAAA reports more than 1,800 alcohol-related student deaths every year, another 600, 000 injuries and nearly 100,000 sexual assaults. One quarter of students say their academic performance has suffered from drinking.

Still, by tradition and articles of incorporation, “fraternities demand and colleges allow the model of self management by 18- to 22-year-olds who are unsupervised, mostly exempt from campus security, completely incapacitated, clouded by allegiance to their fraternity and brotherhood, or simply untrained in identifying and managing risk,” Fierberg said.

This model of risk management, or lack thereof, doesn’t exist in any other industry, he said.

Attempts to make fraternities dry, including those by the Greek industry, have been stymied by a student culture that sees drinking as a “basic right,” according to the Chronicle of Higher Education. Fraternities’ articles of incorporation grant self-management, and a change would require a supermajority vote.

Alcohol is deeply implicated in sexual assault cases; a 2015 United Educators study of its own claims found that 78 percent of sexual assaults involved alcohol.

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In one-third of all sexual assault claims UE studied, the victims were incapacitated, defined as drunk, passed out or asleep. Within that group, both the victim and the perpetrator had been drinking in 89 percent of cases.

The fact that most victims — overwhelmingly women — were under the influence when they were assaulted puts a chilling effect on colleges’ willingness to talk about alcohol in sexual assault cases, said George Dowdall, adjunct fellow, Center for Public Health Initiatives, University of Pennsylvania.

“That’s the third rail, the potential for victim blaming.”

Intractable Problem

Why haven’t insurance companies already advocated for dry fraternities and other mechanisms to limit access to alcohol?

It’s complicated.

Binge drinking ranks lower in the larger catalog of social problems because it’s legal at the age of 21, and alcohol is “totally acceptable” in American culture, said Greg Hunter, area managing director, Arthur J. Gallagher Risk Management Services Inc.

Mike Krackov, senior claims counsel, United Educators

While some carriers may decline to cover fraternities — or increase premiums or deductibles or exclude the risk from their policies — many carriers don’t see their role as heavy-handed influencers of social change. “Insurers are not the alcohol police,” he said.

Premiums have kept pace with risk, said Fierberg, and fraternities have passed through higher premiums in higher dues, which members are willing to pay, in part because they have no basis of comparison.

Ironically, he said, “parents’ homeowner’s insurance policies will likely pay for any litigation involving their sons because of exclusions in the fraternity policies, so it’s really the parents and homeowners’ insurers that are bearing the economic weight.”

Quantifying the problem is itself a problem, said Mike Krackov, senior claims counsel, United Educators, because binge drinking “crops up in unrelated claims,” including sexual assault, premises liability claims, travel abroad claims and personal injury claims.

However, said Hunter, “a large percentage of claims come from incidents on Friday or Saturday nights — party time.”

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The insurance industry doesn’t focus on drinking-related claims, said Hunter, in part because claims payments disguise the underlying cause of the claim.

For example, he said, “a hospital visit related to binge drinking will be paid by the health insurer. A drunk driving accident will be paid by the auto insurer.”

General liability and property insurance liability will kick in if there’s a fight in a dorm room, and workers’ compensation will pay for injury to an employee. None clearly relate back to excess alcohol consumption.

Educate the Educators

The reversal of any self-destructive social issue requires attacks from multiple communities — medical, law enforcement, administrative, educational — said Krackov. “To make an impact, we need training on culture change and bystander intervention. We start with incoming freshman and continue for the next four years.”

Greg Hunter, area managing director, Arthur J. Gallagher Risk Management Services

However, education on responsible drinking should start even younger, said Krackov. By the time students have reached the legal drinking age, it’s already too late. Better to start in middle school, when most students start health-ed classes. This lays the groundwork for later training in high school and college.

Carriers could sponsor some of this, divert some of their advertising spend to middle school alcohol education, Hunter said, but they “don’t see revenue generation as the result of educating people about binge drinking.”

United Educators’ mission includes educating its member-owners, two-thirds of which are institutions of higher education, said Krackov. Its risk management programs include a widely viewed “Know Your Limit” online alcohol usage assessment for college students and “Alcohol and You” for middle and high school students.

United Educators also provides risk management analytic tools, such as checklists for planning campus events, blogs, podcasts and claims studies. “We suggest administrators ask, ‘Where are your reports coming from on Saturday night? A concert? A Greek house?’ Those are where risk managers need to focus.”

But education alone isn’t enough, according to the Journal of Higher Education, as the binge drinking crisis deepens in spite of earnest attempts to curb it.

“The message isn’t what changes behavior,” said Robert F. Saltz, a senior research scientist at the Prevention Research Center. “Enforcement changes behavior.”

Susannah Levine writes about health care, education and technology. 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 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]