Challenging times for the oil and gas industry call for a change in the way insurers address energy risks, writes Nicola Harris, head of energy for Europe, Middle East and Africa at XL Catlin.
Theoretical physicist Albert Einstein is popularly held to have said that “the definition of insanity is doing the same thing over and over again but expecting different results”.
In the energy insurance market we have had a tried-and-tested way of doing things for many years. But maybe it is time to look with a fresh pair of eyes and adapt our ways of working to address the risk needs of a changing industry.
For the oil and gas industry, and the downstream insurance market, these are challenging times, times which call not just for technical expertise and capability, but also – perhaps – a change in approach.
The oil and gas industry is facing a changing risk landscape. While the oil price has risen in 2018, uncertainty about the longer term continues and the price remains depressed compared with historical levels.
In 2017, the Organization of the Petroleum Exporting Countries imposed supply cuts to boost the oil price. An uptick in US production has been offset to some extent by geopolitical tensions in the Middle East, US sanctions on Iranian oil exports and a continued reduction in Venezuelan output.
The industry also is under pressure to cut costs, and adapt to new technology, shifts in regulation and environmental concerns, among other factors.
Against that backdrop, there have been challenges for the energy insurance and reinsurance industry too. The series of devastating hurricanes, Harvey, Irma and Maria, last year caused insured losses of at least $75bn (£57bn) for the insurance and reinsurance industries – the worst in a decade.
Energy clients have to balance an awareness of their risk profile in the changing external insurance environment with internal expectations about the price of insurance coverage, and the necessary investment in risk management and risk engineering.
Insurers want to find ways to maintain long-term relationships with energy clients, in order to understand their risks and really get under their skin.
And we are aware that we need to adapt the way we work to meet clients’ changing needs.
Typically, the roadshows that energy clients, brokers and underwriters take part in when talking about coverage or renewals can be a little like beauty parades.
But recently, a broker with whom we work put together a sort of ‘reverse roadshow’. Rather than just listening to a presentation about the client before going away and quoting a price, we were able to properly engage with the client and give feedback.
It also gave us the chance to put forward the underwriters’ point of view of the client’s operational concerns, to discuss risk management issues, for example, rather than focusing on price alone.
This approach gave everyone the opportunity to broaden their understanding of each other’s viewpoint, requirements and goals.
This is not about reinventing the wheel; it is about redefining the perspective.
The oil and gas industry faces challenges ahead. And the insurance market is a difficult one and likely to remain so for some time.
We – insurers, brokers and clients – cannot just sit back and wait for the market to change. We need to break away from the way we have always done things and adapt.
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