Did you know that the energy transition is accelerating?
Conditions are now more promising for those programmes that have already been significantly impacted by the hardening market conditions than for those who have not.
Welcome to this year’s Energy Market Review. There are three main insurance market trends that we highlight in this year’s Review. First, there is the emergence of two tiered markets; conditions are now more promising for those programmes that have already been significantly impacted by the hardening market conditions than for those who have not. Second, the impact of COVID-19; on the Upstream side, the dramatic curtailment of Exploration and Production (E&P) operations and on the Downstream side, reduced Business Interruption (BI) values. Thirdly, the long-running insurer concerns over premium income levels, particularly in the Upstream sector. Clearly this issue is linked to the effects COVID-19, but given the acceleration of the energy transition, overall E&P and refinery activity levels in the energy sector are unlikely to recover to previous levels at any time soon.
In the meantime, the besetting issue confronting the energy industry – that of climate change and the resulting energy transition – has, if anything, accelerated during the past 12 months, and we are putting this issue front and centre of our Review once again. Please read on and I’d be delighted to discuss any of your issues arising out of this publication with you at any time.
“Climate change and the resulting energy transition – has, if anything, accelerated during the past 12 months”
Graham Knight
Head of Global Natural Resources
This is a recording of the webinar which was held for the launch of this Energy Market Review 2021. Our global Natural Resources team gather with expert panellists to discuss the challenges and risks seen in the energy industry.
At Willis Towers Watson we continue to support our clients in achieving an orderly energy transition, enabling them to increasingly align their business strategies in response to these stakeholder challenges and pivot towards a net-zero future. We are committed to taking a positive approach to this issue, helping our clients achieve their new objectives as rapidly as possible. We very much hope you enjoy reading the Review and as ever would welcome any comments or feedback that you may have.
01
We are delighted that Dominic Emery, Chief of Staff at bp plc, agreed to be interviewed by us a few weeks ago and an edited transcript of our conversation is the leading article of this year’s Review.
It is a cruel irony that in any other industry the market fundamentals that drive the oil & gas industry would point to a booming future if it wasn’t for climate change. Indeed, investors would be positively queuing up to be involved and customers would be delighted with the service that they would receive.
The 2020s promises to be a decade of change like no other for the energy industry. It is truly an “undiscovered country from whose bourn no traveller returns”. Energy is a fundamental bedrock of our economy, alongside food & water, communication and finance.
In March 2021 Willis Towers Watson’s Chief Broking Officer for Natural Resources, Richard Burge (RB), spoke to both Sam Harrison, Group Chief Underwriting Officer (SH), and Peter Burton, Executive Director, International Markets (PB) from global insurer QBE. They discussed a variety of topics, ranging from the future of the global insurance markets to the impact of climate change and the energy transition.
02
What are the top political risks for energy companies in 2021? To answer this question, perhaps there is no one better to ask than the energy companies’ own in-house analysts.
Throughout history, pandemics - such as the plague - have driven economic crises, political upheavals and social unrest. COVID-19 is no exception, and multilateral organisations are sounding the alarm.
Energy company insurance managers have faced significant challenges in recent months. Not only has the pandemic impacted the demand for energy and company operations, but coming on top of the hardening insurance market, and increased scrutiny of risks by insurers, placing an insurance program within budget constraints has been a real challenge for many firms.
When the hard insurance market conditions, making renewal negotiations more challenging and time intensive, is combined with the myriad of changes to our professional lives brought about by the global pandemic, there is now a real need for innovation in communicating effectively in today’s risk management environment.
Oil Insurance Limited (OIL) continued to deliver the long-term stable benefits the members have grown accustomed to while elements of the commercial market were anything but steady.
03
A summary on the conditions in almost every arena of the Energy insurance markets as they continue to harden, albeit not quite to the same extent as 12 months ago.
Mike Hayes (MH) is Senior Vice President at Berkley Offshore Underwriting Managers and has over 35 years' experience in the London insurance market. In this interview he talks to Willis Towers Watson’s head of Liability in London, Mike Newsom-Davis (M N-D) about the current conditions in the Energy Liability markets, the current challenges facing insurers and the value of energy companies maintaining long term relationships with insurers.
In overall terms, the Upstream market has had another satisfactory underwriting year. We reported last year that the hardening process in this market was considerably less dramatic than in some of its related classes of business,and that if the recent profitability of the portfolio could be maintained, then perhaps the degree of rating increases would abate as we moved further into 2021.
Last year our Review presented a very gloomy picture of a significant hardening of the Downstream market. With 2019 losses continuing to surpass premium income in a similar fashion to both 2018 and 2017, we had very little good news to offer buyers in hope of better market conditions on the horizon.
As we suggested in our October 2020 Update, there is still little comfort to be had from a buyer perspective from the International Liability insurance market. While it is true to say that the Property markets are hardening but still not truly hard, the International Liability market is indeed just that.
Over the last three years, the Energy Construction market has undergone a drastic change, transitioning firmly out of a very soft market. The previous fifteen years of reductions in insurance premiums and broadening coverage has now made way for restricted and regularly challenged policy coverage, together with increased rates and deductibles/excesses, as the markets seek to alleviate their exposures.
Events in US, Chile and Hong Kong have precipitated significant Strikes, Riots and Civil Commotion losses to the global insurance market, with many losses having been insured in the Property/All Risks market.
A summary on the Upstream and Downstream capacity.
