The energy market is grappling with a series of challenges, as record losses, rising costs, and global events continue to impact the sector, according to Amwins “State of the Market: A Focus on the Energy Market” report.
Key factors driving these challenges include extended production cuts by major oil-producing nations, geopolitical tensions, and a growing backlash against green energy initiatives.
In 2022, the downstream energy sector experienced one of its largest loss years in a decade, with estimated annual gross losses exceeding $7 billion. Attritional losses increased due to higher mechanical losses and extensive outages caused by supply chain disruptions.
Inflation and supply chain issues have led to higher loss settlements, resulting in premium increases for both physical damage and business interruption coverage.
The mid-stream energy sector is grappling with a surge in claims, particularly from liquid pipe incidents, with substantial verdict awards. This has led to increased coverage requirements for subcontractors. Capacity remains available, but rates are rising, impacting both accounts with no losses and those with minimal claims exposure.
Upstream energy is experiencing underwriting scrutiny and potential coverage restrictions, signaling the possibility of a hard market. Insureds are facing intense scrutiny, with underwriters emphasising loss prevention measures and modeling to establish limits.
The D&O and cyber insurance markets have stabilised in the energy sector, with favourable rate trends and available capacity. However, coverage may be harder to place for highly debt-leveraged insureds.
Inflation, increased claims costs, and aberration verdicts are impacting the London market. First-party upstream accounts are seeing rate increases, while the casualty market faces broadly higher rates.
PFAS and climate change exclusions have become standard, and underwriters are excluding territories like Russia, Ukraine, and Belarus. ESG has yet to significantly impact the market.
Overall, the energy market is navigating through a complex landscape characterised by rising costs and losses, prompting insurers to take a cautious approach to underwriting and coverage. The impact of global events and industry dynamics continues to shape the sector’s outlook, with challenges expected to persist in the near term.