Staying on Track

There has been a sharp increase in oil spills from tanker cars.
By: | October 1, 2013 • 7 min read

A side effect of the oil and gas boom has been a spike in the number of rail tanker oil spills. In many cases, outdated tracks are the culprit.

Domestic oil production is on the rise — and with it oil spills from rail cars, as producers use alternative methods to deliver their product in the absence of pipelines.

The latest spill to make international headlines occurred in June, when a freight train carrying crude oil exploded in flames in the Canadian town of Lac-Megantic, killing dozens and destroying more than 30 buildings. SR_100113

Railroad and oil companies that lease rail cars can lessen the chance for spills from both slow leaks and sudden derailments or collisions, by increasing inspections and adding protective measures during loading and unloading at stations, experts said. Moreover, all parties involved can better protect themselves by obtaining certain coverages within their insurance program.

U.S. rail companies reported 112 oil spills from 2010 to 2012, compared to just 10 spills in the previous three years, according to the U.S. Pipeline and Hazardous Materials Safety Administration.

Jim Beardsley, managing director, Marsh Global Rail in Washington, D.C., said that most spills happen during railway accidents such as collisions, derailments or overturns, while slow leaks from faulty cars are less frequent or severe.

Rail Incidents_100113

“There are inspections at every point, from loading the oil onto the train to moving it to another railway to unloading,” Beardsley said. “While on the train, it’s not impossible, but very unlikely, for product to spill out because of equipment failure.”

For spills due to sudden accidents, part of the problem is that some tracks in areas such as Montana, Canada and the Bakkan Formation in North Dakota, weren’t in frequent use before the recent oil and gas production boom and are now subject to heavy volume, said Ron Mathewson, Rail Casualty Underwriting manager, Specialty Products, Zurich North America Commercial in New York City.


“The unit trains transporting crude oil can get up to a mile in length — that’s a lot of wear and tear on these tracks,” Mathewson said. “It’s up to the railroad to make sure that the tracks are up to snuff. Specifically, an underwriter wants to know how much money is spent per track mile.”

Carriers like Zurich that offer insurance coverage for rail transport also want to know how a railroad is controlling “the human element” — engineers and conductors — whether they are operating the train safely, following speed limits and paying attention to signals.

The third issue underwriters consider is the “rolling stock” — pressurized tank cars. In a situation when a railroad picks up a car owned or leased by another company, the railroad is required to inspect the car. If the tank car fails inspection, the railroad sends it out for repair.

“It can be a real challenge to adequately inspect a mile-long train,” Mathewson said. “For our book of business, we haven’t seen crude derailment spills, but it’s something we’re keeping our eye on. Our typical clients are in the short line rail space. They tend to move slower, with less chance for derailment with catastrophic spills.”

Emergency Response

When a derailment happens, Zurich provides an online environmental claims spill report process, so companies have the ability to report emergencies and initiate a response program immediately, said Christopher Hagerman, Zurich’s emergency response coordinator. This can reduce their environmental liability and exposures and, as such, their damages and costs.

The program, free to clients, provides emergency response coordination services, technical resources and access to Zurich employees who have subject-matter expertise, as well as verbal and regulatory reporting, Hagerman said. A Zurich emergency response coordinator facilitates communications between the customer, the regulators on site and the emergency response contractors and consultants responsible for mitigation of the emergency.

“It takes a massive response to coordinate with local, state and federal officials,” he said. “We have to make sure our insureds are sitting down at the table and talking with us as their insurance carrier, and that consistent lines of communications are established with regulatory authorities to make sure the spill is being handled efficiently and effectively.”

Robert Fronczak, assistant vice president, Environment and Hazmat, for the Association of American Railroads (AAR), said that railroad companies annually train about 30,000 emergency responders, either internally or through the American Chemistry Council’s Transportation Community Awareness and Emergency Response program. Moreover, railroads sponsor training for local emergency responders.

However, reducing the risk of spills starts with preventing accidents in the first place, Fronczak said. The association annually invests more than $13 million on railroad safety and efficiency research, and the Federal Railroad Administration spends even more. Such research is primarily conducted at the association’s Transportation Technology Center in Pueblo, Colo.

“Examples of some of the research that is going on there includes evaluation of safer track and bridge components, the evaluation of better ways to inspect track to prevent rail-caused derailments, and the use of wayside detectors to detect defects on rail equipment,” he said. “Railroads also conduct research in fatigue management to help employees deal with fatigue on the job.”

Railroads are also active in implementing “positive train control” — technology that monitors the location of all trains within a system, with the goal to automatically stop trains before collisions if their crews do not, Fronczak said.

The association has also helped to produce standards for the construction of crude oil and ethanol tank cars, which has significantly lowered the probability of product release to about 18 percent.

Fronczak said the preventative measures are working: Train accidents and accident rates in 2012 fell 16 percent and 19 percent, respectively, from 2011, according to Federal Railroad Administration.

The trade group also works to reduce “non-accident releases,” (NARs) typically caused by rails cars not being properly secured at point of origin, he said. Since the inception of the NAR Task Force in 1996, such leaks have been reduced by 49 percent. Moroever, AAR recently revised its Pamphlet 34 — “Recommended Methods for the Safe Loading and Unloading of Non-Pressure (General Service) and Pressure Tank Cars” — to assist shippers in the proper procedures for loading and unloading.

The NAR Task Force “constantly” looks for ways to reduce such leaks by collecting and evaluating data, Fronczak said.

“The Task Force is looking at hardware that can be implemented or improved upon, as well as improvement of processes used in the loading and unloading of tank cars, and communicates issues identified as a result of their activities,” he said.

Covering All Angles

Regarding insurance, most casualty programs for railroad companies have sudden and accidental environmental coverage, so railroads don’t often purchase specific standalone pollution coverage, said Thomas Swartz, senior vice president with Marsh’s Environmental practice in Houston.

“There can also be gradual leaks, but they are generally not insurable through casualty programs,” Swartz said. “These leaks are typically of a smaller size and magnitude, and while they can build up over time to larger issues, most railroad companies generally assume these risks within their self-insured retention, choosing not to purchase environmental liability coverage.”


While the casualty programs will often respond to over-the-rail sudden and accidental events, the loading and unloading operations may not be the responsibility of the railroad company — which can potentially expose the tank car owner or the owner of the product to liability from spills during transloading operations, he said.

The companies that own the product or tank cars may choose to insure the loading and unloading portion of the risk with a specific environmental policy, often called a pollution legal liability policy, Swartz said.

This type of policy also provides contingent liability coverage for over-the-rail spills in the event that the product owner is sued directly for damages from a spill. Furthermore, pollution legal liability policies don’t generally exclude gradual pollution events, offering the insured broader coverage than is available through traditional casualty programs.

Oil companies purchasing transportation coverage must specifically request that “rail” and “rolling stock” be added if their carrier does not include these terms in the definition of transportation, said John Welter, executive vice president and managing director of Aon’s Environmental practice in Houston.

“Derailment spills make news because they are big releases and catastrophic, but over time a line or coupling became undone and oil spills to the ground,” Welter said.

“That happens more frequently, so oil and trucking companies will want to make sure their carrier’s definition of transportation includes loading and unloading.”

While regulators are increasingly scrutinizing the use of rail cars and pipelines to transport crude, more carriers today are providing environmental insurance than before, he said.

“The underwriting process might be tougher because of increased scrutiny and publicity, but coverage is still readily available,” Welter said.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. 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.


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.


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?


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.


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.


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]