Report reveals fewer major losses in the energy infrastructure industry has reduced insurance costs

Despite an increase in the size and scale of new energy infrastructure projects, national oil companies (NOCs) and other energy and chemical concerns are experiencing fewer and less-severe major losses than in previous years, new research revealed.

A new report, commissioned by Marsh, details the 100 largest property damage losses in the hydrocarbon industries since 1972.

Despite massive growth in the sector, the report shows that catastrophic losses at petrochemical plants, gas processing plants, upstream projects and terminal and other distribution points have declined over the last five years as companies enhance their risk management techniques.

Based on the use of sophisticated risk management techniques combined with a lack of natural catastrophes and plentiful insurance capacity, Marsh has predicted that NOCs could benefit from lower overall costs of risk over the next few years. Insurance costs could be up to 20% less for both the refining (downstream) and exploration & production (upstream) sides of their businesses.

Jim Pierce, Chairman of Marsh’s Global Energy Practice, said: “Energy sector risk management has evolved into an applied science that is making a real difference to mitigating the catastrophic losses that were more common in previous years.”

“It is important that oil, gas, and chemical companies make use of improved risk management techniques as we predict that there will be more energy sector mega-projects. The age of the $50bn project has arrived and with it the potential for any large loss to be very costly. However, by learning from past incidents, and applying the latest risk mitigation strategies, many NOCs and other energy sector players are well-equipped to avoid the kind of catastrophic incidents that could do serious long-term harm.”

Pierce added: “All energy companies are likely to see something of a reduction of their overall cost of risk. However, the firms that have embraced the highest levels of risk management will benefit most.”