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Press Release

Energy market uncertainty set to continue, but insurance price pressures may ease

April 12, 2023


SINGAPORE, April 12, 2023 — Market volatility is very likely to continue for the global energy sector, which remains beset by challenges including:

  • the necessity of net zero transition,
  • dramatic price fluctuations,
  • immature alternative development and adoption strategies, and
  • a fluctuating regulatory backdrop.

The uncertainty resulting from these market disruptions is one factor fuelling continued insurance price increases across the sector, according to the Spring, 2023 WTW Energy Market Review published today by WTW (NASDAQ: WTW), a leading global advisory, broking, and solutions company.

In Part One the Review considers the future beyond “peak oil”. Its sweeping survey of the energy industry highlights the challenges it faces, but also illuminates opportunities. “Security of supply will remain a top priority for governments,” the Review states. “The US is responding to higher prices by striding ahead in all areas of energy production. If international governments follow suit, then operators and contractors are set to benefit.”

Contributions to the Review come from a range of WTW experts and cover four important risk management issues including:

  • risk optimization strategies for a potential recession,
  • maximizing Return on Capital through an assessment of insured values,
  • understanding supply chain risk, and
  • tackling the “competence barrier.”

Nicki Tilney, Head of Construction, Power & Renewables, Asia, WTW, says: “The continuing fallout from the Russia-Ukraine conflict, ongoing inflationary pressures and more volatility in the prices of oil and gas meant that the need to maintain energy supplies today and the transition to clean energy tomorrow have never been more critical. Yet the supply chains that underpin these objectives are struggling to deliver the infrastructure and operational capacity to meet the demand.

“Our 2023 Energy Supply Chain Risk survey has shown that companies recognise the need to overcome these challenges and improve supply chain resilience, but they are hampered by an inability to get hold of enough accurate data to manage their risks. It is therefore key for energy companies, including those in Asia, to work closely with their suppliers to better understand their supply chains. Diagnostic tools, such as WTW’s Supply Chain Risk Diagnostic, could also help to increase visibility and support proactive risk assessment and decision making.”

In Optimising risk: Strategies for a looming recession, Andy Smyth, who leads the WTW Risk & Analytics team in London, says insurance managers need to understand fully their key risk drivers, how they may be mitigated, and how different strategies balance cost and the need for protection.

Justin Paglio, Senior Director for Risk, Forensic Accounting, and Complex Claims at WTW, says in Reviewing insured values: How to maximize return on capital, that the new inflationary environment has altered the value of assets. Risk managers should reevaluate them to optimize risk transfer and support a broader exploration of vulnerabilities and resource deployment.

Jim Walker, a Risk Control Engineer in WTW’s Natural Resources business, shows how a lack of competence contributed to many high-profile, historical offshore losses. He explains how a Competence Management and Assurance Scheme can reduce risk.

Part Two of the Review discusses the current state of energy insurance markets. It begins with a Q&A between Tom Houston, Head of Upstream at Convex Insurance, Paul Sankey, the carrier’s Head of Downstream, and WTW’s Richard Burge and Adam Barber-Murray.

Asked to comment on the impact of the war in Ukraine, Sankey cited the way it has revealed the energy industry’s integration with the global economy, as highlighted by Europe’s turn from Russian oil towards imported LNG. “In the short term the world is focusing on energy security, and that shift alone makes the energy industry different, while other factors such as energy sustainability and energy affordability are also going to change it in the long term,” Sankey said. “As economies move away from their dependence on Russian natural resources, I think these changes are inevitable.”

A geographical round-up with market updates, including from China are also included in the Review. In particular, Su Ke, Head of the Energy Department at WTW Risk and Broking China says there is reduced appetite for programmes with no Chinese interest across both the Upstream and Downstream insurance market. She also observes a new dynamic regarding MGAs (Managing General Agents) in China, which has begun its exploration stage and has the potential to bring significant premium to the market.

Download the complete report: Energy Market Review 2023.

About WTW

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.

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