Pushing the Envelope

The Thrill of the Risk

Amusement parks must balance the desires of customers and the need for safety measures.
By: | June 2, 2014 • 7 min read

In the ever-constant battle for the scariest rides, amusement park risk managers have their work cut out for them.

Owners constantly push the envelope in ride design to create an atmosphere of heightened risk to attract thrill-seeking patrons. That risk is only supposed to be an illusion, but it can become all-too-real thanks to the subjective decisions of park owners, ride operators and patrons themselves.

Case in point: In 2013, Rosa Esparza, a heavyset woman was allowed to ride a roller coaster at Six Flags Over Texas, but then fell out of the car and to her death when the ride turned upside down. Esparza’s family is now suing Six Flags and its parent companies, as well as the ride’s manufacturer, Gerstlauer Amusement Rides in Münsterhausen, Germany.

Video: ABC News reports on the deadly accident on the ‘Texas Giant’ roller coaster ride at Six Flags amusement park in July 2013.

Roughly 297 million people visit the 400 U.S. amusement parks annually and take 1.7 billion safe rides, according to the 2011 Fixed-Site Amusement Ride Injury Survey of the Association of Amusement Parks and Attractions. The chance of being seriously injured on a ride at a fixed-site park in the U.S is 1 in 24 million, and 61 of the 1,415 ride-related injuries, or less than 5 percent, required some form of overnight treatment at a hospital.

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Most parks design and operate rides with the utmost safety in mind, but the tricky part is making sure the rides seem like they’re very risky, said Robert Murphy, global entertainment and events practice leader at Marsh in Philadelphia.

“If a park is marketing itself for thrill-seekers, they are typically pushing the big coaster speed rides,” Murphy said. “Then it becomes the battle for the most advanced ride – the fastest, tallest, most loops. There’s this constant competition to upgrade.”

Loss of public trust may be a park’s greatest exposure. “That’s what will kill your company.” — Jim Petersen, attorney specializing in risk management litigation

Likewise, risk managers of water parks have to contend with their own set of challenging risks, particularly patron drowning, or water-borne illnesses that may affect not just one or two patrons, but hundreds, he said.

The risks assumed by a park can rarely be transferred, but they can be shared by patrons and “designer engineers,” said Boyd F. Jensen II, owner of Garrett & Jensen law firm in Riverside, Calif., who sits on the safety and ASTM executive committee of the International Association of Amusement Parks and Attractions.

Personal injury lawsuits against park owners can be more easily defended if the owners provide documentation that their rides have been operated in a safe manner by trained employees, maintained routinely, complied with accepted safety standards and passed periodic inspections, Jensen said.

Park owners should document incidents as specifically and thoroughly as possible, ideally accompanied with photos and statements, he said. Owners should also demonstrate that they have posted signs and audible warning of known risks, and have ensured that patrons can witness a ride’s characteristics prior to boarding.

Impact on Reputation

But lawsuits can still be challenging because of the resulting perception that the park is not safe, Jensen said. Parks often settle to avoid additional public scrutiny, even though sometimes they could have shown that the patrons did not heed warnings, such as if they had existing heart or back trouble.

“Substantial sums of money can be wasted in settlements and jury verdicts due almost entirely because of inexperienced advisers,” he said.

Jim Petersen, a Chicago attorney specializing in risk management litigation

Jim Petersen, a Chicago attorney specializing in risk management litigation

Indeed, loss of public trust can often be the greatest exposure for a park, said Jim Petersen, a Chicago attorney specializing in risk management litigation. “That’s what will kill your company.”

When theme parks are under pressure to build the next biggest, fastest, tallest rides, certain biases can enter into the risk assessment process, Petersen said.

There is the bias of confidence based on the fact that ride designers have been good at what they’ve done up until this point, so park owners and managers assume they’re going to be good at whatever they do in the future.

Moreover, park managers tend to assume that that the scale of risk rises in a linear way – for example, if they build a ride that’s 10 percent bigger, that means a 10 percent increase in risk, Petersen said. However, increases in risk are typically exponential, so park managers need to prepare instead for greatly elevated risk levels.

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“If theme parks are under pressure to get it done … to start the revenue stream, they may be hurt by these biases and build something far more risky — or move too quickly in disregard of the need for a higher degree of prudence,” Petersen said. “They need to slow down and be careful enough to not only think of the risks they do know, but conceive of things they might not know.”

“A theme park can only transfer the monetary loss to insurers, but not the legal liability and loss of reputation if they are sued.” — Frankie Hau, risk and environmental manager, Ocean Park, Hong Kong

Frankie Hau, risk and environmental manager, Ocean Park, Hong Kong

Frankie Hau, risk and environmental manager, Ocean Park, Hong Kong

Frankie Hau, risk and environmental manager at Ocean Park in Hong Kong, said that too few parks focus on enterprise risk management, and many risk managers tend to focus more on the insurance program for high-risk rides than managing risks across the entire enterprise.

“A theme park can only transfer the monetary loss to insurers, but not the legal liability and loss of reputation if they are sued,” Hau said. “If there is gross negligence that results in worst-case scenarios such as a fatality, then directors can go to jail.”

Ride manufacturers are generally responsible for the mechanics for the life of the ride, but parks must strictly follow procedures outlined in the manufacturers’ operations and maintenance manuals, or they will be found liable in court, he said.

In the current Six Flags case, Gerstlauer has filed a cross-complaint against the Texas park for not using a “test seat” that the manufacturer provided to test weight loads on the restraint system. Attorneys for Six Flags, Gerstlauer and the Esparza family did not return phone calls seeking comment.

Typically local authorities require that parks load test each of their rides with dummies, sand bags or concrete buckets per the manufacturer’s test weight recommendations, said Michael Greear, director of risk control services with Aon Risk Solutions’ entertainment practice in Denver.

Many manufacturers have training sessions on their rides for park mechanics, and completion of courses should be documented and presented in court cases.

Safety Screenings

But the weight of patrons can be a very challenging issue for parks, Murphy said.

“You can’t put a scale at the ride entrance and require people to stand on it — it has to be by sight, and so basically the park has to say to the operator to use their best judgment,” he said.

Patrons should be able to fit into the seat and have the safety bar closed, locked and fully supporting them, Murphy said. Moreover, if the ride malfunctions, operators have to be able to help the heavy person out of the car and down steps.

It helps to have another employee there to maintain “zero tolerance,” and if there is a disagreement, the other operator can call the supervisor, he said. Many parks try to screen for height and weight at the beginning of the ride’s line, so the person doesn’t have to wait in line or face even greater embarrassment.

For water parks, lifeguards must routinely patrol pools not only to watch for drownings, but also floating debris that could contaminate the pool, Hau said. Then, they must clear the pool, retrieve the substance, sanitize the water with a suitable dose of chlorine and then test the condition of the pool.

In the event of a claim for sickness, parks need to provide documentation to the court that they constantly tested the water’s quality, making sure chlorine, acidity and turbidity levels conform to international standards.

Risks increase on busy days when operators take shortcuts about cleaning testing, treating and then reopening pools, Greear said. “Many times, a business decision is a risk acceptance decision.”

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From an insurance perspective, park risk managers can avoid some headaches if they understand what their policy covers and doesn’t cover — understanding the exclusions, coverage limits and requirements for reporting a claim if an event occurs, he said.

Risk managers should also work with their carriers and brokers as partners, because they have a great deal of expertise in loss control within their health and safety groups.

“By doing so, an operator could either avoid an incident or claim altogether or be in a position, through training and documentation, to show that they took the reasonable steps to reduce or eliminate a risk,” Greear 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.

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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]