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How the Insurance Industry Can Keep Up With the Energy Sector

Since the end of 2021, the geopolitical landscape in the energy market has dramatically changed. Ukraine, China, production limits and more are all having an impact.
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how the insurance industry can keep up with the energy sector

Since the end of 2021, the geopolitical landscape in the energy market has dramatically changed and continues to do so. The current conflict in Ukraine; China's continued implementation of its zero-COVID-19 policy; coordinated releases from the U.S. Strategic Petroleum Reserve; and oil producers' decisions to limit any increases in production are all having an impact.

Meanwhile, oil prices remain volatile and oil executives have argued against ratcheting up output, unconvinced that demand will be there when the wells come online. Their focus, like any business, is returning value to shareholders, reducing debt and providing consistent growth into the future.

Yet, we are seeing signs of increased production activity. From the end of 2021 to April 2022, rig counts rose 17.5%. This increase indicates a corresponding increase in all ancillary oil and gas activity. With major oil production companies committed to sustained growth and focused on profitability, the growth in rigs is primarily being driven by more nimble private operators who haven't seen a favorable economic environment for their businesses in many years. We're likely to see this expansion continue. However, economic uncertainties could result in a supply glut if certain geopolitical events lead to less demand or an increase in supply.

We're also continuing to see a continued drop in drilled but uncompleted (DUC) well counts, which is another indication of increased production activity.

So, what does this mean for the insurance industry? We've seen insureds of all sizes—from an oil and gas consultant to a major drilling company—increase projected revenues by at least 20%, with some growing by as much as 300%.

Increased activity in the field comes with increased claims, which we're also seeing. The auto line of business is generating much of the activity as more oilfield drivers, many of whom are recent hires, may not have much experience.

Many energy underwriters are requesting additional information regarding fleet controls and are also limiting when and where they're choosing to deploy capacity in the umbrella space. Therefore, it's important to look ahead on accounts with large losses or a large fleet to develop a game plan in advance of the renewal.

Success can be found in placing difficult, wheels-driven accounts in the energy sector by leveraging underwriter relationships in the environmental, transportation and energy marketplace. Collaborating on renewals early and getting the information to market in a timely manner can help decrease the turnaround time for underwriters.

Though auto and umbrella lines of business remain challenging to place, we're starting to see rates level out in these areas, as well as in general liability. Over the last few years, underwriters have focused on securing rate increases or non-renewing undesirable accounts and their efforts have resulted in a semblance of calm after the storm. We continue to see underwriters seek up to 10% rate increases on accounts with steady exposure growth while loss-free accounts within an underwriter's targeted business lines can see increases under 5%.

Not all energy carriers are in a great spot. We have been monitoring some carriers regarding questionable renewals on certain accounts. This includes both carriers in the excess & surplus and admitted markets across transportation, environmental and casualty lines within the energy industry. Our advice is to proactively communicate with underwriters early to get a better picture of the renewal.

Underwriters remain focused on account retention—and with exposures growing throughout the industry, this focus is even more critical.

Clay Fuchs is area assistant vice president—casualty broker, Risk Placement Services (RPS). Grant Bryant is area senior vice president, RPS. 

Monday, July 11, 2022
Commercial Lines