London market fails to provide value for money, says energy panel
The London insurance market is 'overly complex' and is losing relevance to its customers in the energy industry, with product that fail provide value for money.
This is according to a panel discussion at the Onshore Energy Conference, held this month in London.
75 percent of an audience of over two hundred insurance professional and risk managers voted to agree with the statement that 'the insurance industry is full of complicators and not simplifiers.' The statement went on: ‘We need to disrupt the overly complicated procedures or we should expect to be disrupted’.
Only 3 percent of the audience disagreed with the statement.
The panel also discussed whether London insurers should ‘unbundle’ their products, separating risk management and risk engineering from the core insurance policy.
Gustavo Penas, Shell’s VP risk and insurance, who does not buy commercial insurance because his company operates a major captive, said: “The level of risk we face is no less than 20-30 years ago but it has become more complex to understand. The insurance market helps us to assess, understand and quantify that risk. Then it helps to transfer the risk if the owner doesn’t want it. While the first part of that process is still relevant, the second part is fading away as energy firms have large balance sheets so can retain the risk.
“Some ten years ago, we at Shell concluded there was not enough value in transferring risk to the insurance industry. It was too complex and too costly.
“The insurance industry is not ticking the boxes for us in terms of relevance to our risks. Our exposures are massive but the market is not here for us. We had the choice of only transferring a small part of our risk in return for an expensive premium or keeping the lot. We chose the latter – and the last ten years have shown our decision was the right one.”
Asked whether insurers should unbundle underwriting from risk management and risk engineering, Andrew George, Marsh’s global chairman for energy and power, said: “I don’t think we should necessarily separate out our products. It’s different for each client and class.
“We are an industry of complicators. We like making things more complex and we like telling people how clever we are. We have to stop doing that… we need to get on with what we’re supposed to be doing.”
Joe Meaney, VP global insurance and risk engineering for energy business the AES Corporation, suggested that unless the insurance sector did a better job, new entrants to the power sector like Google and Amazon would not need commercial insurance because their balance sheets were too strong.
Meaney said: “I get paid for bringing the best possible solutions to manage our risks. That means I have to find the best solution. Our captive has functioned well, which is sad because I would have hoped that the insurance market could produce a better solution. If insurers help me to be the solutions person, we’ll always do business.
“The good news is that risk is not going away. The bad news is that insurers need to stop complaining about price and change – about how things aren’t what they used to be.”
The session’s moderator Luis Prato, XL Catlin’s energy regional product leader for UK and Ireland, said: “The fact that global energy consumption is forecast to continue growing for the foreseeable future presents real opportunity to the market. Energy companies are facing ever increasing technical and business risks, for which the insurance industry is ideally positioned and capitalised to provide solutions.”
Asked whether the London market’s claims process was ‘fit for purpose’, 60 percent of the audience either agreed or partly agreed that it was.
Introducing the event Richard Foulger, head of claims for AEGIS London, said the event was about ensuring the London insurance market remained relevant to the onshore power sector and adapted to change.
Foulger said: “We had a mixed audience of underwriters, brokers and representatives of the energy industry, which promoted some lively debate.
“I think the key take-away was that the energy industry will experience some major changes in the next 5–10 years, not least because of the growth of new technologies dependent on electricity rather than oil or gas. The London market will need to respond to those and other significant changes and consider carefully how it can create value for businesses, some of whom are well equipped to manage much of their own risk.”