While the Energy insurance industry remains in a hard market, much has changed in the last 12 months. Buoyed by the war in Ukraine, the price of oil has risen from $70 to well over $110 as of June 27, global oil production and consumption has climbed to pre-pandemic levels, and rig activity is up significantly. Most oil producers are no longer straddling the line of profitability even as investments and expectations for environmental social governance (ESG) programs grow.
As a result, clients within the Energy industry are more financially stable for now. Still, uncertainties remain even as the momentum for a tight market is slowing. Excess capacity is a premium, and rate increases remain, even if stabilized. Underwriters are being pressured to get more details on submissions. Some carriers have pulled out of specific oil and gas classes, or altogether in energy sectors, but increased production and profits mean others have broadened their appetites for new exposures.
Most contractors working within the oil industry are on rigs, and activity is booming. The U.S. has increased its rig count by 270 year-over-year as of June 2022 and that number is expected to rise. Canada has added 40 new working rigs and the rest of the world 67 more during the same time period, leading to more private capital and investments. Increasing demand and limited supply, largely because of the war in Europe, is behind these trends. Russia is the second largest producer of natural gas and the third largest producer of crude oil in the world, and EU and global sanctions have forced other producing countries like the U.S. and Canada to keep pace.
Changing regulatory attitudes from governmental and corporate entities toward sustainable resources will drive many of the strategic decisions for the Energy market in the next several years. The good news is that opportunities abound for subject matter experts in the insurance sector.
Companies are increasingly aware of environmental social governance trends
The impact of ESG trends is a hot topic in the industry as the attitudes of world leaders are shifting. The desire for a smaller carbon footprint is nearly universal, with companies needing to appease investors, future employees and the public at large of their sustainability efforts. These energy companies are investing in technologies designed to capture emissions, improve efficiencies and speed toward net zero carbon emissions in the years ahead.
Many brokers report at least 50 percent of their time with clients is spent planning on these issues, with the U.S. Security and Exchange Commission (SEC) and other governmental entities updating guidelines for environmental impact reporting. Private and publicly traded companies have established their own sets of goals and guidelines to influence sustainability goals as well. Some examples include carbon capture using hydrogen, the use of low intensity crude oil barrels, and other steps to reduce greenhouse gas emissions and carbon footprint.
Additional strategies to improve an ESG program or profile include lead deduction and repairs, using landfills to replace gas, thermal recovery, smarter use of methane on dairy farms, and efficient use of water resources. Modern technologies help manage these lofty yet important goals, with resources such as high-impact cameras and an array of tools measuring the level of success widely available.
Renewables in Canada and the U.S.
The rate of adoption for renewables are trending upward in both the U.S. and Canada. Sustainability and climate commitments within the Energy sector are in place because of public demand, governmental mandates and public pressure. However, Europe is ahead of North America with commitments, even though Canada is taking a progressive view of renewable adherence. In particular Canada has established a strong network of hydroelectric power and is growing its net zero impact in solar and wind.
The province of Alberta for example traditionally has an active large oil and gas industry but has slowly been diverting more efforts towards renewables. A total of $175 million has been spent on emission reduction and $130 million on carbon capture in Alberta alone in the last few years.
Many energy companies in the U.S. are investing in more renewable innovations such as windmills and solar technologies, the latter more possible because of advancements in storage technologies and solar batteries. The insurance industry is adding investments in these areas too, with more retailers and brokers establishing renewable division of experts. Renewable energy will comprise an even larger share of the market with more investments.
Specialty coverage solutions
Through Burns & Wilcox, we have binding authority in-house, access to an exclusive Oil & Gas Consultants Program, and a broad appetite for renewable energy risks. The professionals at Burns & Wilcox have the experience and industry connections in the U.S. to identify the best solutions, and secure options for any insurance need. This includes the ability to package General Liability, Pollution, Professional Liability, Companion Auto, Companion Workers Comp, Property, Inland Marine, Excess and Cyber policies.
Despite capacity and cost pressures, there is business to be had. By working with experts from Burns & Wilcox who have their fingers on the pulse of the Energy industry, brokers and agents can find solutions for hard to place risks that might otherwise be difficult to secure.
Key takeaways for brokers and agents
While change is a common theme in the Energy industry, many of the takeaways for brokers and agents are unchanged. Maintaining strong relationships with carriers and underwriters has never been more important given the competition for coverage that comes with capacity issues. The good news is brokers and agents who have an appetite to write business can do so, assuming those relationships are in place.
In addition to building strong relationships, brokers and agents should:
- Stress creativity – thinking outside of the box can provide clients with more coverage options, separating you from competitors.
- Sell based on coverage rather than cost – showing the value of the coverage provided in a hard market will position you as a content expert with less attention paid to price.
- Ensure the sophistication of quality submissions – not only should all questions be answered but additional details that are not asked can make all the difference.
- Partner with multiple carriers – for unique solutions that may not be available elsewhere.
- Discuss how environmental social governance programs and renewables are impacting clients – arming yourself with more information in these areas will lead to repeat business and upsold coverage options.
Industry changes are common within the Energy sector, but as technology advances, so do the available insurance product. Specialized policies not only protect clients but provide brokers and agents with the opportunity to build trust and display true content expertise. That is important no matter what a barrel of oil costs.
Contributed by Gina Jones, Vice President, Director, Environmental Programs, Burns & Wilcox; Karim Jaroudi, Manager, Environmental, Burns & Wilcox Canada; Alex Krcmarik, Senior Broker, Environmental, Burns & Wilcox
This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.