Atlantic, west of Africa; $178 million from a rig in North
America; and around $150 million from a platform incident
in the Gulf of Mexico.
Cost-cutting measures can alarm insurers, who are concerned
with the potential implications on maintenance levels and,
subsequently, resulting claims activity. Over the past year,
insurers have been worried that cost-cutting may be putting
pressure on health and safety standards for some upstream
energy infrastructure companies in particular. The recent
experiences of South Korea’s ailing shipbuilding sector acts
as a further warning. Faced with a sharp reduction in orders,
Korean shipyards have been cutting costs, contributing to a
spike in losses.
However, it is hoped that the need to maintain a good
reputation for safety and efficiency in the offshore sector
should see oil companies and contractors remain focused
There is a growing emphasis on companies’ financial
strength and their ability to demonstrate that maintenance
budgets are protected and that the most experienced people
However, as yet, there has not been an overall increase in
claims frequency, and the reduction in budgets could be offset
by lower levels of drilling and the need to protect
NEW RISK CHALLENGES FOR INSURERS
The tough operating environment also presents new challenges for insurers. For example, AGCS has been working
with credit insurer Euler Hermes, also a subsidiary of Allianz
SE, to assess the credit risk of companies in the offshore
sector, benchmarking the individual financial fundamentals
with the parameters of the global oil and gas industry.
The low oil price has also seen rig utilization rates fall to
around 68% worldwide at the beginning of 2017 from around
90% in 2015, which means many have been put into temporary
or long-term storage. With so many rigs sitting idle, this poses
a different set of risks for oil companies, drilling contractors,
and their insurers.
Rigs are designed to be working and will deteriorate much
faster when not in use. This is new territory for contractors,
and an area where there is little guidance. But insurers can
conduct surveys and send out engineers to assess the quality
of lay-up and advise clients accordingly.
The stacking of rigs in large numbers at a single location
presents a potential accumulation risk for insurers. Rigs are
being stacked in unprecedented numbers - some 350 rigs are
thought to be laid-up at the time of this writing, often in
areas exposed to hurricanes or cyclones. Rigs once worth up
to $500 million each can be stacked, often just meters apart,
in exposed areas in Scotland, Trinidad, and elsewhere. Risk
assumptions once made by insurers to review individual
exposures are becoming obsolete. Natural catastrophe ac-
cumulation control (e.g. for Gulf of Mexico windstorm) be-
comes an almost unsolvable challenge.
Accumulation is also a potential issue with consolidation
in the energy sector. Operators and contracts are looking to
shed non-core assets, while some are predicting a wave of
mergers as they seek efficiencies.
MANAGING OPERATIONAL EFFICIENCY AND RISKS
For oil and gas operators, service companies, and insurers
alike, the focus of the “new normal” is on managing both
operational efficiency and risk.
At AGCS, the focus now is on risk management, effective
loss control, and efficiency of underwriting processes, as well
as reinsurance solutions, modeling, and data to manage increasing volatility.
AGCS’ has taken a technical approach to underwriting
energy risks—recruiting specialist engineers in areas like
This is still a viable industry and there are still opportunities for underwriters. Beyond technical underwriting, however, AGCS has increased focus on due diligence and loss
Oil companies, like insurers, have to plan for the long term.
Despite the current difficult market conditions, demand for
oil continues to rise with a growing global population. However, the reduction in exploration is expected to eventually
result in a gap in supply. Today’s supply glut will be absorbed
and demand will overtake supply.
Insurers, as a supplier to the energy industry, need to
support clients, while at the same time managing a prolonged
bottom of the cycle. The companies that survive the next few
years, and that maintain market share, will be well placed
when the market finally returns.
ABOUT THE AUTHOR
Steffen Halscheidt is Global Energy Product Leader at Allianz Global Corporate & Specialty (AGCS)
based in Munich, Germany. He has more than 20
years of experience in the insurance and re-in-surance industry, both in claims and underwriting. He currently is responsible for the overall
performance of the Global Energy portfolio and for technical
support to the regional hubs. He joined Allianz in 1995 and
has served in Tokyo and later in Singapore prior to returning
to Munich. Before joining Allianz, Halscheidt, a certified civil
engineer, worked for five years as an engineering consultant
in the industrial sector.