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Insurers looking closely at energy buyers’ ESG credentials: Willis

Posted On: Apr. 9, 2021 12:31 PM CST

Willis

On top of rate increases, energy insurance buyers are seeing growing scrutiny of their environmental, social and governance procedures, Willis Towers Watson PLC said in a report Friday.

Insurers are taking a deep interest in buyers’ ESG credentials, particularly when reviewing oil and gas programs, Willis said.

A withdrawal by insurers from writing coal and oil sands risks has had a profound effect on capacity in the international liability market, Willis said in its 2021 Energy Market Review.

As a result, fossil fuel companies are seeing more significant rate increases, according to the report.

Viable capacity for buyers whose focus is oil sands has more than halved to around $200 million in London, versus close to $500 million 18 months ago, Willis said.

“A number of insurers in Bermuda can help in achieving the limits required, but at higher premiums and more restrictive terms,” Willis said.

Conditions in virtually all energy insurance markets continue to harden, though some moderation for some risks is expected, according to the report.

Average premium increases were 25% to 40% across Willis’ international liability portfolio between October 2020 and February 2021, depending on individual risk profiles and perceived rate adequacy, it said.

“We have seen well in excess of 50% for some programs which have not achieved this adequacy,” Willis said.

Liability rate increases continue to depend heavily on the amount of program limit required, Willis said in a statement.

For property business, a two-tier market has developed with business with a good spread of risk and premium income attracting more moderate rate increases than the rest of the portfolio.

In general, all markets are reviewing coverage terms and conditions, seeking to restrict unusual or peripheral coverages such as cyber, charterers liability, pandemic and pure financial loss.

As a result of price and capacity constraints, several major energy buyers have chosen to self-insure part of their program or to reduce overall program limits rather than be held as a “hostage to fortune,” Willis said.

Realistic liability capacity is estimated at $1 billion for most energy business, depending on region and risk profile, according to the report.