In Russia's immense oil and gas sector, competitors keep an eye on Andrey Elokhin—they need to.

As head of the insurance department at Moscow-based oil giant OAO LUKOIL, Mr. Elokhin has set the benchmark in Russia for developing a state-of-the-art risk and insurance management system, and it is one that others are being expected to follow.

Mr. Elokhin is quite willing to share his knowledge with colleagues through speaking engagements, as he did earlier this month at a seminar for energy risk and insurance managers in Moscow, sponsored by the Russian Risk Management Society.

But it's not uncommon that Mr. Elokhin gets a phone call from competitors directly.

And it's no wonder companies are calling. Underwriters are starting to expect them to follow LUKOIL's lead.

In 2003, Mr. Elokhin initiated the practice of using outside risk engineering firms—Industrial Risk Ltd. in Moscow and Suregrove Ltd. in Tadworth, England—to produce detailed survey reports, which make specific safety recommendations. He then ensures that the recommendations are carried out at each facility, refinery and plant.

In Suregrove's latest 2009 report, Mr. Elokhin pointed out a paragraph that reads, “The active involvement of LUKOIL's corporate insurance department over the course of the last six years in implementing the recommendations is considered to be having a positive effect in motivating the management of the plants to take action.”

While it is common for companies to use surveys to market their risks to underwriters, LUKOIL was the first company that showed “the evolution of its risk; not just a snapshot, but what is happening to risk and how it is being addressed over time,” said Petr Sudoplatov, divisional director of industrial property and energy at Willis CIS in Moscow, part Willis Group Holdings Ltd., LUKOIL's main reinsurance broker.

“When we come with other oil companies to the market and talk to (underwriters), they tell us, do it as LUKOIL does it,” Mr. Sudoplatov said, adding: “I would say that LUKOIL represents the best profile for the insurance market, which should be held up as an example.”

Tim Bibbs, risk engineering consultant at Suregrove, has worked with Mr. Elokhin for many years. He says he deserves a lot of credit for the way he's managed to pushed through Suregrove's safety recommendations.

“Risk management is something new in Russia and it is very poorly understood,” said Mr. Bibbs. “Lots of people call themselves risk managers and just organize the insurance for a company.

“But Mr. Elokhin takes it much more seriously and has been involved in risk management before anyone ever heard of it in Russia. He's trying to implement these things and we've seen a lot of success within LUKOIL.”

Reinsurers who work with Mr. Elokhin have similar praise. “Professor Elokhin is a brilliant, forward-thinking risk manager who acts as a keen promoter of transparent integrated risk management approaches,” said Loredana Mazzoleni Neglén, director, energy and power, in the industrial risk insurer unit at Zurich, Switzerland-based Swiss Reinsurance Co.

“He has coped with a variety of industry challenges during the year, which he overcame with his profound expertise and authority deeply rooted in the insurance market and in the oil and gas sector,” she wrote in an e-mail.

LUKOIL is Russia's largest independent oil and gas company, with annual revenues last year of more than $107 billion and net income of more than $9.1 billion. It's a fully integrated global energy company, carrying out exploration and production of oil and gas, turning it into petroleum products, and selling it at LUKOIL gas stations across Europe and under the Getty and LUKOIL brands in the United States.

The basis for Mr. Elokhin and his team to manage the risks of such a mammoth operation is spelled out in a corporate document that outlines LUKOIL's risk and insurance strategy and policies, explains Mr. Elokhin. Insurance is used to protect fully against the risk exposures of the business and its main assets, as well as for its more than 150,000 employees worldwide.

The LUKOIL insurance team, which is part of the company's treasury department, handles all the insurance buying for the parent company's principal operations, which are in four countries: Russia, Ukraine, Bulgaria and Romania. In addition, they handle the insurance needs of numerous subsidiaries.

Under the program, the insurance team analyzes the potential catastrophic risks across the operations, from refineries and power generation plants to marine vessels and offshore production facilities. They also examine and insure the risks that Russian law mandates, such as liability coverage for the operators of any hazardous equipment. The law, however, identifies the lowest limits of liability required.

“From our point of view, (the required amount) is absolutely insufficient, and that is why we buy an excess liability cover which is identified by our surveyor,” Mr. Elokhin said.

For instance, for its refinery and petrochemical plants, LUKOIL has a $700 million liability property damage limit for each and every loss—one of the highest property damage limits in the Russian market. Aircraft fuel liability cover has a limit of around $500 million, he said.

LUKOIL also buys obligatory coverage, such as directors and officers liability, because LUKOIL is listed on the London Stock Exchange. The policy limit is $50 million.

In the past, LUKOIL handled its insurance needs through its own captive, LUKOIL Insurance Group, which Mr. Elokhin first joined in 1997.

But after LUKOIL partnered with ConocoPhillips, an international energy corporation with its headquarters in Houston, LUKOIL deemed its insurance captive was not a relevant asset for the integrated company and sold it to Russian insurance and banking magnate Danil Khachaturov in 2003.

Mr. Khachaturov, who also owns the personal lines insurance giant Rosgosstrakh, renamed the new acquisition Kapital Insurance Group. Based in Moscow, Kapital is one of the leading commercial insurance underwriters in the Russian market.

With LUKOIL required by Russian law to buy its primary insurance cover from a domestic carrier, it put out a tender for its one master policy. The winner: Kapital.

Other big insurers participated in the tender, but Kapital had the advantage of knowing very well the profile of LUKOIL, as well as having branch offices in all of the regions where LUKOIL operates.

LUKOIL's major risks demanding a high level of indemnity limits are then reinsured in international markets. The programs are led by several highly rated carriers, including Munich Reinsurance Co., Swiss Re, Zurich Financial Services, ACE Ltd. and Arch Insurance Group Inc.

For reinsurance broking, LUKOIL uses Willis to handle reinsurance for all its refineries and gas processing plants, marine vessels, as well as for placing D&O liability cover in the London market. Marsh & McLennan Cos. Inc.'s Moscow office handles LUKOIL's gas stations in Central Europe, while cargo is brokered by Belgibo N.V. in Antwerp, Belgium, according to Mr. Elokhin.

On Mr. Elokhin's watch, LUKOIL has benefited from steadily lower insurance costs. His comprehensive approach to risk management may have something to do with it, but he freely admits he's benefited from a softening insurance market, good brokers and a smart decision to lock in a three-year contract in 2004 when the market was starting to harden.

Now he is back to buying on a one-year cycle and is trying to decide whether to continue that practice or revert to another long-term contract. “It is a crisis now and it's hard to predict how the market will do,” he said.

Another of Mr. Elokhin's decisions that benefited LUKOIL was persuading underwriters to change the average clause in its contracts. The average clause is a standard clause in London and continental European markets stating that if property values are inaccurate, then the insured may not get full indemnity under the policy, according to Mr. Sudoplatov of Willis.

For example, in the case of equipment that is older than 15 years, a company could get only 80% of its value after a loss, he explained.

“Our philosophy is stating exactly that we need to bring the production facilities back to the state which they were in right before the incident,” Mr. Elokhin said. “So the question we posed was, can we eliminate this clause, and the answer was, "Yes you can.'”

To do that, LUKOIL in 2004 hired Milwaukee-based American Appraisal Associates Inc. to re-value all of the company's assets every two years. “This gives us the certainty that if a loss happens we will get the full indemnity,” Mr. Elokhin said.

While Mr. Elokhin takes a global view of risk, he is skeptical about enterprise risk management trends.

“Risk management can have a very wide definition,” he explained. “Each country has its own culture, its own philosophy...If you compare enterprise risk management in the United States and in Russia, they may probably be very different, and which one is better? That is a big question.”