The New Zealand Government has proposed plans to significantly increase the amount of insurance protection offshore oil and gas operators are required to have in order to drill off the country’s coast, which in turn would generate demand for reinsurance.
According to local news reports, Associate Transport Minister, Julie Anne Genter has proposed legislation that aims to raise the insurance protection requirement from a minimum of NZD 27 million (USD 18 million) to as much as NZD 1.2 billion (USD 790 million).
She explained that under the current regime, the insurance protection oil and gas operators must have in order to drill off New Zealand’s coast is inadequate. Reports claim that new research suggests that a worse-case scenario oil spill could cost a substantial amount more than the protection operators are required to have in place in order to drill.
New Zealand is one of a number of countries that has been looking to implement stricter rules and regulations around liability insurance for oil, gas and other energy companies for some time now. The adoption of this type of policy in New Zealand, which still remains uncertain, could encourage other governments to follow suit.
Furthermore, a substantial increase in the need for insurance protection will undoubtedly drive demand for offshore energy reinsurance and spill liability protection in the region, as insurers look to protect any growth in exposure.
Some industry commentary has reportedly said that the NZD 1.2 billion upper limit is perhaps too high, but according to Genter, the upper limit is set at this level in case a future installation occurred at a higher-risk, deep water location. This suggests that for existing operators, the actual amount of insurance required would be much lower.
Under the proposed legislation, the level of insurance required is dependent on the level of risk posed by an installation.
