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Energy Firms are Turning to Captives Over Complicated Covers


Insurance buyers with onshore energy firms warned the London market insurance community of the complexity of risk transfer products and how they are unable to offer real value for money or relevance. This was the conclusion of a panel discussion held at the recent Onshore Energy Conference in London.
 
The insurance industry isn’t able to be relevant to the risks faced by energy firms. There is plenty of exposure, but the market isn’t there for firms. They were presented with the choice to transfer a small amount of risk in return for expensive premiums or assuming all the risk. They chose the other option and the last ten years have shown this was the right choice.
 
75% of polled risk managers and insurance professionals agree that the insurance industry is packed with more complicators than simplifiers. 60% of the audience agreed on some level that the claims process of the London market was fit for purpose.
 
Risk levels are no less than they were 20-30 years ago, but insurance is much more difficult to understand. The insurance market allows companies to assess, understand, and quantify their risks. An energy firm doesn’t buy commercial insurance, choosing to self-insure with a captive insurer. It helps to transfer the unwanted risk. While the first aspect of this is still relevant, the second has become less relevant as energy firms have the balance necessary to retain the risk.
 
Shell decided around 10 years ago that there was no value to transferring the risk to an insurance company because it was too expensive and complex. The panel suggested that disrupting the insurance sector could help to solve the complexity problem.
 
Unless the insurance industry can improve their offerings, potential disruptors such as Amazon and Google, would have no need for commercial insurance as their balance sheets are strong enough to survive without it.
 
Other companies are insuring themselves because the insurance market has failed to create better solutions. Thankfully for insurers there will always be a risk that needs to be insured against. The bad news is that insurers must stop complaining about prices and changes – about how things are no longer the way they once were.
 
The panel discussed the idea of unbundling energy insurance products to make risk engineering and risk management separate from the core insurance policy. Some believe that there’s no need to separate all of the products however, admitting that they live in an industry of complicators. They feel the energy industry is one where people enjoy complicating things to make themselves sound clever, and that this must change just as much as the insurance industry should change.