Specialty Insurance

Smooth Sailing

Specialty Insurers and their risk management partners find a way to keep historic vessels in use.
By: | February 22, 2016 • 8 min read

When the Lettie G. Howard first sailed the North Atlantic in 1893, she faced fierce winter storms, icy waters and long stretches at sea.

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Today, as a designated historic landmark and teaching vessel docked at New York’s South Street Seaport Museum, life is calmer for the fully restored 125-foot wooden schooner.

But historic vessels like the Lettie G. Howard face many other challenges, including unique risk and liability issues. Luckily, there are a small number of specialty insurers that know exactly how to manage those risks.

Historic vessels range from elegant tall ships to massive steel icons of World War II and even riveted iron ships. Their insurance needs can vary based on construction, purpose, mobility, uniqueness and ownership.

“It’s primarily a marine risk, so you’re going to have hull and P&I, and liabilities for the vessel,” said Robert Riske, senior vice president at Worldwide Facilities LLC.

“The larger ones have some shore-side operations, which might involve a gift shop, the parking lot, etc., so you can get involved in a regular GL-type package risk as well.”

Simon Winter, director, Simon Winter Marine Ltd

Simon Winter, director, Simon Winter Marine Ltd

“We call them commercial combined liability policies. It is one policy packaged together in different sections,” said Simon Winter, director of the UK-based Simon Winter Marine Ltd.

Typical sections include damage to the hull, marine third-party liability, public liability, and employers’ liability, as well as personal accident and crew medical, and, for income-earning vessels, loss of use.

One of the biggest challenges of insuring historic vessels is determining an accurate valuation.

“At the bottom end you’ve got scrap value and at the top side you’ve got whatever historical value you can put to it. Then you’ve got the economic value, as in, this is going to bring visitors to either the community or the vessel or the organization,” said Riske.

Surveyors will generally try to base valuations on purchase price, according to Gene McKeever, vice president, board member and marine insurance specialist at Allen Insurance and Financial.

“There is a reason for that. … If someone were to buy one of these vessels for … $1.2 million, and the replacement cost is $4.5 million, you may be creating a moral hazard by that person going, ‘Well, if I insure for $4.5 million, the thing is worth more resting on the bottom of the ocean than it is in my hands.’

“So the underwriters say no, if the person bought it for $1.2 million that’s what they want it to insure it for,” said McKeever.

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Donated vessels have no sale price, however, leaving underwriters searching for sales of comparable vessels, a particular challenge for unique vessels.

Ultimately, valuation can involve more art than science.

“Underwriters would always prefer to underwrite a risk at market value. An owner of an historic vessel … would much rather be insuring for an amount nearer to new-build value, and those values can vary by millions.

“We always tend to achieve a compromise, but it involves a negotiation between the three parties: the broker, the underwriter, and whichever entity is writing the valuation,” said Winter.

Maintaining historic vessels also presents challenges.

“Generally we ask that those vessels have a maintenance schedule, so this year we’re going to do the planking, next year … the framing, the year after that we’re going to work on the deck beams, that sort of stuff,” said McKeever.

Gene McKeever, vice president, board member and marine insurance specialist, Allen Insurance and Financial

Gene McKeever, vice president, board member and marine insurance specialist, Allen Insurance and Financial

“Many of them actually have the historic plates … from the government, being a national historic place. They have to be very precise and very careful … because they have to keep them totally authentic.”

At the same time, he said, the vessels use modern fasteners and modern electronics.

“The hull insurance is easier to get than the liability. … You know you are looking at a finite thing when you are looking at the hull and its value.  Liability is not finite at all.

“When someone gets injured … there’s no dollar limit on what that injury might cost.”

Riske agreed.

“Liability is the real exposure. Underwriters are concerned with the numbers of volunteers, crew, visitors or passengers, special events, educational events involving minors, fireworks displays, and on-shore activities, like ticket sales, cafes, souvenir shops, parking.”

Many historic vessels rely heavily on volunteers and they can all count as crew. Especially in the case of ships from World War II, they are often sailors who originally served on those ships, meaning an aging population working on aging equipment.

“Once it’s operational, you’ve got numerous public liabilities,” said Riske, citing steep ladders, low bulkheads, possible asbestos, and sometimes food and special events.

“They present a challenge for trying to get the proper pricing for them, but most of all they’re a good risk.”

Trip and Tow

While some historic vessels, known as Dockside Attractions, are no longer mobile, most are sometimes moved for events, maintenance or relocation, under their own power or towed by tugboats.

“How do you insure them when they’re generally speaking pretty fragile vessels and they have to go out on the big water to get to the next port? That sometimes presents a lot of challenges,” said McKeever.

Foreign vessels entering U.S. or Canadian waters confront issues involving pollution liability, jurisdictional disputes, and liability limits.

“If a vessel needs to be towed … they find a reputable tug boat operator, who will say they need a Trip and Tow survey. … ‘Can this vessel stand the stresses of being towed, whatever way it is being towed?’

“And that survey goes to the underwriter so they can determine if they are going to insure the trip,” McKeever said.

Towing a large vessel in international waters can involve another set of laws and requirements.

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“A majority of towing of large vessels tends to be done under TOWCON, which is a set of terms and conditions that is internationally recognized,” said Winter.

Foreign vessels entering U.S. or Canadian waters confront issues involving pollution liability, jurisdictional disputes, and liability limits. Ships from Europe often enter Canadian waters first, where the Transport Canada, the Canadian coast guard, will stop them and ask for a Certificate of Financial Responsibility (COFR).

“That’s the first thing they ask for and that’s actually pollution coverage. Most of them can’t produce it because they generally don’t have a problem with pollution from historic vessels … but neither the Canadians nor the U.S. will allow them in federal waters without it,” said McKeever.

Even tall ships and other wooden vessels must produce a COFR, but McKeever said that even though they have bottom paint and typically carry a diesel generator, they tend not to cause environmental problems.

“I have not seen a pollution claim against a tall ship and we’ve been doing it for a long time.”

The U.S. and Canada also require greater liability coverage than other countries.

And if, as is often the case, the vessel’s coverage stipulates local jurisdiction — meaning civil suits must be adjudicated in the vessel’s home port, according to its laws — both the U.S. and Canada require coverage that allows disputes to be settled in their respective courts.

Insurance Requirements Vary by Jurisdiction

Jurisdictional issues can be a factor more locally as well, said Maggie Flanagan, operations manager for the nonprofit New York Harbor Waterfront Alliance.

Maggie Flanagan, operations manager, New York Harbor Waterfront Alliance

Maggie Flanagan, operations manager, New York Harbor Waterfront Alliance

“Even different docks within the same city can have different requirements. … It’s not only city, state, federal — there’s also various park service agencies, economic development entities that manage certain parts of the waterfronts,” she said.

“The differences come in insurance coverage requirements for liability insurance put forth by the various docks in a port. … In New York City, between private lease holders on the waterfront, various government agencies and multiple park authorities, there are widely different requirements for insurance to be able to dock at the various docks,” said Flanagan, who worked with several historic and replica ships before joining the Alliance, which counts several historic ships among its 800 members.

Different ownership types have different needs as well.

Government-owned vessels tend to be self-insured. For-profit owners like restaurants have special requirements. Educational vessels are a whole separate subcategory.

“You’re likely to have minors involved … and that always has its challenges for insurance, especially if there’s an overnight program … you’ve got parental consents and all the things you can imagine go with it,” said Riske.

The majority of historic vessels, however, are governed by nonprofits.

“You are dealing with a board of directors, so typically you are dealing with non-insurance people,” said Riske.

Nonprofits also tend to have tight budgets, and insurance can take up a substantial portion of them.

The SS United States, now docked in Philadelphia, was a technical marvel when it was launched in 1952, and has served since then, “as an iconic symbol of American technological innovation and engineering might,” said Susan Gibbs, executive director of the Philadelphia-based conservancy that is searching for a permanent home for the vessel.

“The ship still holds the transatlantic speed record, achieved on her maiden voyage using only two-thirds of her power.

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“As a Naval auxiliary, she was packed with top-secret defense features and could be quickly converted to transport 15,000 troops more than 10,000 miles without refueling,” said Gibbs.

But the conservancy has been struggling to cover the ship’s carrying costs, and almost a quarter of the conservancy’s $60,000 monthly expenses go toward insurance.

“It can be a significant part of the budget,” said Flanagan.

All these factors combine to make a good broker invaluable.

“We are all nonprofits doing our missions and there is not a lot of extra resources in the office,” said Flanagan

“You look at the list of requirements and you’re like, ‘Oh my gosh!’ ….You get these requirements from the permit and then you cut and paste to the insurance broker and say, ‘Help me please!’ ”

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. 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]