Time to sink or swim for energy insurers: Willis

The current competitive market conditions mean that energy insurers must innovate to survive, according to Willis.

In its latest natural resources market review, Willis urged energy insurers to increase innovation and offer buyers a wider range of new products and services.

“A combination of the recent collapse in oil prices, record capacity levels, relatively benign loss records and reduced risk management budgets have all contributed to some of the most competitive energy insurance underwriting conditions for 15 years,” said Willis.

Willis added that the increased potential for merger and acquisition (M&A) activity among energy companies which has become an ongoing trend recently will almost certainly mean further consolidation within the energy industry. In consequence, this will mean less premium finding its way into the insurance markets.

“Moreover, another potential worry for upstream insurers is whether some medium- capitalised companies, who are now the owners of a significant amount of upstream infrastructure in some regions, have the risk management resources and acumen to ensure that the high safety standards inherent in the working practices of the super-majors will be maintained,” said the report. “To date, there is little evidence of these fears being well-founded, but some apprehension in the market remains.”

Willis noted that the largest increases in underwriting capacity were in the upstream (where capacity increased to $6.9 billion), downstream (to $5.5 billion) and international onshore liability (to $2.4 billion) insurance markets.

Alistair Rivers, head of Willis’s natural resources industry, said: “In this underwriting climate, we believe that the time has come for more innovation, for new products and services to be developed to attract the interest of the buyer. At Willis, we believe that it is the London market, as the traditional innovators of natural resources industry risk transfer products that should lead the way.

“The recent pledge by the UK government to work with the re/insurance industry to attract insurance-linked securities business into the United Kingdom - a move which we in the London market would all welcome – could help inject some fresh thinking into the market.”