3 Ways To Prepare For Insurance Renewal In A Hardening Energy Market
With an ongoing global pandemic causing an overall collapse in global demand for oil and gas, it’s no surprise that 2020 has proved to be an extremely volatile environment for energy and mining companies. Alongside these challenging global conditions, the energy insurance environment continues to harden, particularly in the downstream sector which has faced a series of high-profile losses within the first quarter of 2020. So far, the downstream sector has been the worst impacted but there are signs that both upstream and casualty sectors are firming and will become more challenging in the months ahead. At this stage, it is difficult to determine what the full impact of the global pandemic will be on the insurance sector, specifically on the energy business. Keeping the ongoing uncertainty in mind, it will be imperative for risk managers to put themselves in the best possible position by preparing for more challenging insurance discussions and renewals this year.
The below three ways to approach renewals should guide energy businesses and risk managers to prepare for insurance renewals in the most time-efficient and cost-effective ways.
- Prepare early for your renewal
- Review the accuracy of your insurance submission to avoid underinsurance
- Meet your insurers
1. Prepare early for your renewal
Preparing much earlier than usual for insurance renewals ensures that there is more time to negotiate with markets and explore alternative programme structures in order to mitigate potential premium and rate increases.
Insurers are attempting to de-risk their portfolios – which translates to a higher level of scrutiny on every risk. In practice, this is felt through an increased number of questions posed by insurers during the renewal process. “During a firming market, businesses should not underestimate the number of questions that insurers may ask. Making sure that there is enough time set aside to answer these questions fully and factually will be absolutely crucial”, said Charlotte Watts, Associate Director, Energy & Mining, Aon Asia.
2. Review the accuracy of your insurance submission to avoid underinsurance
Whenever the market outlook is uncertain, insurers try to tighten the insurance cover on offer to better manage their exposure to losses. Naturally, their attempt will be to mitigate volatility in their portfolios by imposing business interruption caps onto insurance policies. In the event of a claim, this could impact the amount businesses are able to recover from insurers, as the cap is intended to limit recoveries where businesses have incorrectly declared their business interruption values. It is therefore key to ensure that the values being declared are accurate to avoid underinsurance.
Following a number of insurance claims globally, which revealed that the property values of many businesses were significantly underestimated, there is now increased insurer scrutiny on the accuracy of declared property values. The best way forward is to ensure that businesses have their assets professionally valued on a regular basis.
3. Meet your insurers
Having a good rapport with insurers becomes even more important in an uncertain marketplace when insurers are more selective of the risks they are willing to insure. Continue to build relationships with incumbent insurers, meet face-to-face or at least virtually (during the current pandemic) at least once a year. “As the property insurance market continues to face significant losses, we anticipate that insurers will further tighten and restrict coverage to limit their exposures”, Shepherdson advises.
As available capacity decreases, it is also important to build new relationships with prospective insurers. Businesses that can build rapport and share their risk management ethos with insurers will be looked at more favourably by them.