CJ: Even among our own associates, there are surprising things about FM Global. For example, I can’t think of a single client who takes advantage of everything we have to offer. It also would surprise people that we have a relatively small number of clients and that we have about two and-a-half employees per client. I believe our willingness to push the envelope a little bit would probably surprise people, just how far we’re able to go. It could be a piece of scientific research on a product and nobody knows how it will react in a fire; lithium-ion batteries was one research project, recently. Also, our ability to push into the unknown and find answers. Additionally, a lot of people are surprised to find out that we are an insurance company with no actuaries. I doubt any other insurance company would say, “We have no actuaries.”

Let me explain: Actuaries do exceedingly well, as we all know, where they’re dealing with repeatable events and the law of large numbers. At FM Global, we’re look into the future, not necessarily into the past about what could cause property loss and instead of relying on actuarial expertise, we’re relying on engineering expertise. About half of our staff are engineers. We may not be actuaries, but we’re not too bad at math. We have leading research scientists who are gazing into the future. They’re figuring out what the next exposures are.

One emerging exposure, for instance is nanotechnology. There’s very little actuarially known about nanotech, because it hasn’t been in our society long enough. So by having an army of engineers and an army of research scientists, it tends to cause us to be very forward-looking when it comes to potential property risk. From that engineering perspective we’re also able, for instance, to look at levees like those around New Orleans.

Trick question: Would you think a levee is a living thing? Most people wouldn’t.

SM: I would say yes, because it has to expand and contract, and react with the ocean, so … is it thinking? No, but it is like a living, breathing organism, in that sense.

CJ: Absolutely. It has little critters deciding to burrow into it, it has holes made in it, people scrape bits of it away. An actuary can’t tell you what’s just happened to it; an engineer can. We’re able to look at a levee and predict fairly accurately its state of health. An actuary can only tell you what it looked like in the past, how it performed in the past, or what somebody at the particular moment in time told them about it.

So I think it gives us and our clients a little bit of an advantage. So you asked, what is different or what might surprise people about FM Global? The way we think here in New Orleans, the way we link engineering knowledge to a forward view. If we don’t have an answer, we’ll go away and get one. And then in turn, from an underwriting perspective we can create capacity or an insurance offering to go with it.

Take another New Orleans example. The city has done a fantastic job. FEMA, Army Corps of Engineers, and interested parties in hardening the defenses around the city, which really at the moment are based on static water sitting adjacent to a levee. If you remember in Katrina, there was wave action that eroded the levee. Why not go a stage further and armor the levees so that if the wind happened to blow, you could also do something to prevent that wave action eroding the levee. It’s the next step, if you will.

SM: I had a great opportunity to go out in a boat, back in January, and see the new levees up close. It struck me how the new levees are nearly twice the height that they were before.

CJ: Yet there is still the opportunity to make them stronger, tougher and taller. The saddest thing is, it’s so hard to learn from someone else’s accident. It’s great to see the steps that New York is taking after Sandy. It’s a pity they couldn’t have learned from Katrina.

SM: The thing about those events, though, is that there is no precedent for an event like Katrina. I live in Staten Island, and there, Sandy was devastating. We’ve never had a weather event like that.

CJ: You just nailed the problem. Engineers can see those events. Non-engineers can’t imagine them. People tend to rely on their experience, and you just described it. “Living on Staten Island, you’d never had such an event.” If you’d ask an engineer, they would’ve said, “Yeah, you can have a Category 3 hurricane run down the Eastern seaboard.” They can tell you the waterways that are going to get flooded.

Sandy, as you know, was particularly interesting by having a full moon and high tide at the same time. That was what made it as bad as it was. By the way, New York has done a brilliant job since. New codes are in place and things are being built better.

Part of our mission at FM Global is to help people imagine the unimaginable. What can we do to bring this to life, to help somebody who spent their whole life in Staten Island visualize what an event like this could mean for them? It’s terribly difficult to do if you don’t have an immediate historic precedent. You can look at pictures of hurricanes that struck Corpus Christi, Texas and go, “Oh man, that was 80 or 90 years ago.” Yes, it was, but it can happen again.

SM: What promise do some of the world’s emerging markets hold for FM Global? What are some of the opportunities that you see?

CJ: The promise comes in several different ways. The markets of tomorrow aren’t necessarily the markets of today, whether we call them emerging, developing or whatever we may think of. And there are some trends that kind of coincide. One is a flight to urbanization. In all of these markets, countries, or call them what you will, there are new major cities appearing and most of them are in harm’s way. They’re typically on rivers or they’re typically in earthquake zones or they’re in windstorm zones.

There are very few of the megacities of the future that are in benign parts of the world, so society is aggregating its populations in places where bad things are going to happen. And most of those emerging markets, historically, the population has been dispersed and it’s been primarily an agricultural-based economy wherever you are. These new urban centers are creating new risks that have never been seen before. And back to our earlier discussion, there’s no history [to draw upon] because those megacities weren’t there.

Another thing that we tend to see in the emerging markets: The population is looking for a number of different things. One of the things that they’re looking for is to become consumers, and you can almost track which companies are going to go to their countries to help serve them. Tissue is an early indicator of economic prosperity; it’s nice to be able to wipe your nose. This is a symbol, now, of moving into disposable income—being able to buy consumer goods, whether it’s nice sneakers or prepared foods.

So in those emerging markets, very quickly you’ll see developed countries investing in them as a way to serve that growing need. They didn’t need fancy T-shirts 10 years ago, but with disposable income they’re looking for that.

So one trend we see at FM Global, among our traditional base of policyholders in North America/Canada, is our clients are moving into those emerging markets to supply a local demand.

The second trend is the reason those markets are emerging—they have something, and that something tends to fall into one of two buckets: It’s either natural resources or human resources—and so you can almost characterize those markets by, are they an exporter of a commodity, or are they a value-adding, low-cost producer? And they tend to sit into one of those two [categories].

Each of those causes quite a different challenge when it comes to risk transfer, risk management, insurance, and engineering. Very often those countries don’t have robust building codes and standards because they haven’t learned the hard way. The U.S. didn’t wake up one morning and say, “Let’s have some of the world’s best codes and standards.” Rather, the country has had lots of accidents and said, “Unacceptable, we need to fix it.”

This just happened, by the way, in Louisiana, post-Katrina and we’re still learning. The opportunity is, can we transfer some knowledge to emerging countries to save them going through the painful process of learning the hard way. Do there need to be any more hospitals collapsing in India when there’s knowledge of how to build a decent building? Do there need to be any more fires in Bangladesh, when there are ways to control them? So I think there’s an obligation from the richer countries to share knowledge, and at the same time enriching those emerging countries.

Emerging countries also tend not to have sophisticated insurance products. Is there a way richer countries can lend their knowledge and perhaps lend their balance sheet to help protect some of the industry there? The challenge is, many of them are protectionist countries and it’s hard to transfer that knowledge and services.

SM: It’s interesting how different regions all over the world have their own national laws that in some cases prevent you from bringing certain types of protection to them.

CJ: It’s very hard to think of an emerging country that said, “Please come in,” and that’s it. Usually, it says, “Here are a load of rules, you’re going to have to qualify to come in, and very appropriately we’d like to grow our local market.” Fantastic, but by definition that means you’ve got to learn the hard way. So how do you strike that balance? It’s kind of an interesting conundrum.

SM: We talk a lot about achieving growth and getting rate in the United States and servicing existing clients, while also attempting to achieve organic growth in other markets throughout the world. How do you strike that balance?

CJ: I think the balance tends to strike itself naturally. FM Global is not a company that’s going to look to acquire new business just because we can. As a mutual company, we have a responsibility to our existing policyholders as well as future policyholders—and so our task is to take the time to get to know people to make sure that when we do come together our clients are looking for the same type of relationship as we are.

And that really starts with the notion: would you prefer to avoid having a loss, or not? Very straightforward. And if your notion is that you’d sooner stay in business and avoid the loss, we have a lot to talk about. If your notion is very fatalistic; “I really don’t care, it’s not important to me, it’s not number one on my agenda,” then …

SM: “…We can take a few losses and still be OK,” right.

CJ: We’re not for everyone, but for anyone who wants to avoid a loss, I don’t think there’s anybody better than FM Global to help them.