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SECTOR FOCUS: OIL AND GAS
Pumping the pipeline The oil and gas industry offers a deep well of insurance opportunities, but brokers and agents need to approach it with some caution 54
RIDING THE ups and downs in the oil and gas market takes stamina, as does crafting insurance solutions for an industry that’s known for high-hazard exposures and a host of developing risks. It’s hard to talk about the sector without mentioning the price of oil, which has kept the industry on its toes over the past decade. Between mid-2014 and early 2016, the price of a barrel of West Texas Intermediate [WTI] crude oil dropped from over $100 to just $26. “The days of $100-barrel oil are over, and the industry needed to readjust itself to this new pricing,” explains Andreas W.K. Graham, excess casualty vice president and head of energy at Everest Insurance. “Over a threeyear period, the oil and gas industry really did make adjustments.” Between 2016 and 2019, oil prices rose again but continued to fluctuate, falling to around $42 in December 2018 before rising to $66 again by April 2019. The price roller coaster has had reverberations for the sector – and for the insurance industry. “[The price of oil] is always the biggest indicator of whether there are going to be operations in the oil and gas fields or not,” says Joshua Sizemore, senior energy broker at Burns & Wilcox. In turn, the state of the insurance marketplace has changed as the sector experiences pricing highs and lows. “If you look at the results from 2016 onwards, it’s been just terrible because the losses have started coming in, and the rates are much too low because the initial capacity has driven down pricing,” Graham says, speaking about the London market specifically, though he adds that the US market has experienced a similar trajectory. “We saw rates being fairly buoyant through 2014 and 2015, and then a big slide down again as the industry demanded less insurance and more carriers were chasing fewer insureds.” Over the past 12 months, there has been a shift away from writing energy accounts
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7/06/2019 3:12:19 AM