BP disaster exposed hidden risks of deepwater drilling

In the immediate aftermath of the Deepwater Horizon disaster, offshore energy operators looked to augment their coverage for blowouts and the resulting pollution through operators extra expense coverage, said Joachim Wiechers, Munich-based senior underwriter at Munich Reinsurance Co.

“The Macondo catastrophe made everyone aware of the somewhat hidden risks of deepwater drilling, especially in view of possible pollution exposures, and oil and gas companies with offshore drilling exposures re-evaluated their risks,” Mr. Wiechers said.

“Based on the experience of Macondo, clients started to ask for higher (operators extra expense) limits and the inclusion of resulting pollution from blow outs in their liability programs,” he said.

But “during the past five years, we've had a tremendous recovery in capacity,” said Richard M. Blades, Houston-based chairman of Wortham Insurance “Perhaps more importantly, we haven't had the catastrophe-related losses in the Gulf. This is putting pressure on rates and driving them down. Underwriters are offering improved terms and conditions.”

In a report issued last week, Willis Group Holdings P.L.C. said record capacity has produced the most competitive energy market in 15 years, with upstream capacity of $6.9 billion, downstream capacity of $5.5 billion and international onshore liability capacity at $2.4 billion.

Regulators also altered their approach to offshore operations in the past five years.

At the time of the BP spill, a division of the Department of the Interior, the Minerals Management Service, was the primary offshore regulator. Critics said the agency was inherently flawed because it promoted industry growth while also overseeing safety.

In October 2011, the Interior Department reorganized its offshore regulatory structure and established three agencies that include the Bureau of Safety and Environmental Enforcement, which now oversees safety and environmental issues for all offshore energy activities.