In 1967, “AIG was very tiny when I became CEO. When I left in 2005, it was the largest insurance company in history.”
With those two succinct sentences—delivered at the start of NU’s on-camera interview with him—Maurice “Hank” Greenberg powerfully sums up why he has an undisputed claim to be atop our list of Living Legends.
It’s hard to overstate the impact Greenberg has had on commercial insurance; to a certain extent, we’re all living in the world he created.
Greenberg “belongs in the upper pantheon of American business figures—he’s on the same level as Steve Jobs or Henry Ford or Sam Walton. The only reason he doesn’t get that universal recognition is because his accomplishments were in the realm of insurance,” Ron Shelp, author of “Fallen Giant: The Amazing Story of Hank Greenberg and the History of AIG,” tells NU.
When Greenberg took the helm of AIG (he joined the company, founded in 1919 by C.V. Starr in Shanghai, in 1960), “there virtually were no companies in the U.S. writing tough, commercial risks,” he recounts. “Lloyd’s was the biggest underwriter of commercial P&C and special risks in the U.S.”
That soon changed as Greenberg ordered AIG to reinsure all its personal-lines agency business so the company could focus on the commercial-brokerage side of the industry, where the risks were much more difficult to assess but the potential upside was far greater. “We sought high-risk areas because in high-risk areas is where you made the most money,” he says.
AIG soon became known—and remained long-renowned—for its ability to identify emerging risks ahead of the competition and for its willingness to cover them before others dared.
One example of the dozens of coverages the firm essentially invented: Kidnap & Ransom policies, the need for which became apparent in the wake of a number of high-profile abductions of businesspeople in Latin America in the 1970s and ‘80s.
“I remember a colleague, worried this was an unwise decision, saying to [Greenberg], ‘But think of all those Americans being kidnapped!’ And he turned, smiled and said to him: ‘Ah, but think of all those not being kidnapped,’” relates Shelp, who worked for AIG for many years as a communications executive.
AIG also took the lead in writing Directors & Officers coverage, which today is a standard part of almost every sizable company’s insurance purchase. How AIG’s embrace of D&O came about illustrates Greenberg’s openness to good, new ideas from any source, “even the elevator operator—I didn’t care,” he says.
The idea for D&O “didn’t come through any brainchild we had in AIG,” Greenberg reveals. “The then-head of Marsh & McLennan came to see me and said he thought D&O was going to be a product necessary in the U.S. There was a syndicate in Lloyd’s doing a little bit of it. I went over to London and met with the head of the syndicate. We came back, did a lot of research on our own and said yes, we’re going into this. We started slowly; we didn’t have many competitors. It blossomed. We did very well in D&O. When everybody jumped in and started cutting rates, we developed something different.
“We were very innovative; that was part of who we were,” Greenberg continues. “Always restless, looking for new opportunities and new products or new countries to do business in. We had the courage and we had the financial stability to do that. We were not afraid to do something because there might be a loss. We went to something because we thought there might be a profit.”
As Greenberg mentions, expanding into new countries was a key part of AIG’s growth from a minor insurance player to a $230-billion behemoth. “We were first in many countries,” he notes. “We opened China. I first went to China in 1975 [when] most insurance companies probably couldn’t locate it on a map.”
Under Greenberg, AIG also bucked industry convention on captives. When corporations started self-insuring, most carriers saw the trend as a threat. But “we looked at it as opportunities,” Greenberg says. “There are many facets to our business. We wanted to have the lowest expense ratio that you possibly could have, and fee income [for managing captives] helps that. We were not stuck on you can only make money in the industry by one or two ways: either investment income or underwriting profit. If we were going to write somebody’s captive and handle it, there’s a fee income for doing that. There’s also reinsurance of the captive—so we looked at [getting] every bit of skin out of the game.”
Greenberg can also take credit for introducing the principles of enterprise risk management to insurance companies. “Clearly, when you’re going into tough classes of business, you have to do more than think you have the right rate or think the risk is going to be a decent risk. You have to tear the risk apart, know more about what that risk really is, and how do you control that risk, and how much of it do you want to write, and how much exposure do you want in any particular class. We had an enterprise-risk-management system at AIG that was a combination of credit risk and market risk; we had meetings every week that analyzed the accumulated risk we would have in every area around the world. We knew at any time what that was.”
The implications of Greenberg’s emphasis on AIG’s approach to risk management under his reign were clear: He has stated numerous times that the company would not have needed the infamous $185 billion bailout in 2008 had he still been in charge.
Shelp—who saw his own retirement savings devastated by AIG’s collapse—agrees. “There would have been problems, but I don’t think AIG would have gone under for four reasons: One, the man himself was always on top of everything, constantly; second, he ran a company based on risk but that was risk-averse; third, AIG multiplied by three the number of credit-default sways [it insured] after he left; finally, he had that weekly risk meeting—and when [Martin] Sullivan succeeded him as CEO, he abolished it.”