Willis calls on insurers to respond to conditions in energy sector
Global risk adviser and insurance broker Willis has urged insurers to show greater innovation in products for the energy sector as underwriters face mounting competitive pressure and reduced premium income.
Willis, which has a major presence in Ipswich, says that 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.
The group’s latest Natural Resources Market Review (previously known as the Willis Energy Market Review) notes that the largest increases have been in the upstream (where capacity increased to US$6.9billion), downstream (to US$5.5bn) and international onshore liability (to US$2.4bn) insurance markets.
The collapse in oil prices and its consequent impact on exploration and production activity is also likely to have a detrimental effect on premium income levels, the review says.
Faced with these competitive pressures Willis – a member of the EADT/EDP Top100 listing of the largest companies in Suffolk and Norfolk – urges insurers to provide wider coverage for clients, warning that those that fail to do so could be looking at an uncertain future.
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Alistair Rivers, natural resources industry head at Willis, 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.”
He added: “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.”
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Willis says that areas where underwriters could feasibly offer more flexible coverage or new insurance products include the repackaging of onshore terrorism cover into property programmes, the deletion of cyber exclusions and increased sub-limits for “contingent business interruption” (CBI) or supply chain risks.
It points out that terrorism is still excluded from most property policies, despite the fact that it used to be included as a matter of course only a few years ago. Risk Managers would clearly benefit from having terrorism cover rolled back into property programmes, says Willis.
It says it also sees little sign of the energy markets being willing to delete cyber exclusion from their policy wordings, despite a gradual softening of reinsurance market resistance to this exposure.
The sub-limits for CBI or supply chain risks are still too low for most risk managers in the natural resource sector, with buyers mostly still having to shop around different markets to access the cover they need, the review says.