The energy industry remains financially strong. The U.S. was the largest oil producer in 2023, producing 19.4 million barrels per day.^1,2 This is an 8.5% increase over 2022; and represents 20.1% of the total oil produced throughout 2023.3,4 America was also the largest consumer of oil during 2023; consuming nearly 19 million barrels per day, a 0.6% increase over 2022.⁵ The continued increase in U.S. production combined with social inflation and nuclear claim verdicts have all contributed to heightened underwriting scrutiny for the sector. In fact, oil and gas was the fourth-most impacted industry with $798 million in total verdicts across 2023.⁶

However, the energy sector continues to offer stability overall, particularly for preferred clients, even while it presents challenges for smaller, less desirable placements. There are no current indicators that carriers are planning to exit the space and the growing availability of risk and performance data is honing carrier focus on more profitable portfolio segments.⁸

UPSTREAM

From a casualty perspective, market capacity tightening in 2023 was also seen throughout the first half of 2024 with many carriers pulling back limits and increasing pricing. Pricing has somewhat leveled out on the primary placement but continues to offer increases on the umbrella/excess. This is particularly true in the lead umbrella space on accounts with a large fleet. However, most carriers in this segment experienced a profitable 2023 and there is still competition for desirable accounts.

Underwriting scrutiny continues to be applied to the transportation/auto component of lease operator and oilfield services accounts due to nuclear verdicts in the auto liability space. Certain areas of the country, such as Louisiana and South Texas are proving to be more problematic. Likewise, underwriters are scrutinizing the insured’s contract management practices as action-over claims and verdicts are more frequently impacting the umbrella layer.

MID-STREAM & DOWNSTREAM

For oil, gas and chemical accounts with total insurable values of less than $100M, mid-stream and downstream property accounts are seeing more stable capacity than in recent years. In 2024, renewal rates typically average between flat to +10% on clean accounts, with the majority settling around +5%. However, there are some larger quota-share or shared and layered accounts that are seeing nominal decreases (flat to -5%). 

Insurance-to-value (ITV) continues to be a focal point for underwriting in. Inflation is still a concern but seems to have dropped slightly. Coinsurance is also commonly used by property insurance carriers to protect against potential undervaluation. Insureds should consider pursuing formal property insurance appraisals to ensure their valuations are adequate from a replacement cost standpoint. These appraisals provide confidence in the values to be insured and will typically allow for coinsurance to be removed. At a minimum, consideration should be given to increasing real property values on renewal schedules (i.e. +3% to +6%) to protect against potential coinsurance penalties which could result in reduced claim payouts.

When it comes to wind exposures, coastal (Tier 1 and Tier 2) wind exposed accounts are still scrutinized as carriers are carefully monitoring aggregate exposure. Wind deductibles tend to range from 2%-5%; however, some carriers are opting for even higher wind deductibles (i.e. 10%) to offset pricing. Non-coastal risks may see higher wind/hail deductibles as 1% to 2% are becoming the standard on non-coastal accounts due to the frequency and severity of convective storm losses. From a casualty perspective, downstream and mid-stream capacity is ample for most risks, with some modest increases in midstream capacity. The 2023 downstream loss record has continued to deteriorate; however, it is still an improvement over 2022 losses. If loss history in this segment continues to improve, some market softening would be anticipated. With some strategic rearrangement of the tower, this would likely result in flat renewals or even modest rate reductions. Midstream losses also seem to have slowed, and some flattening of pricing is anticipated. Advances in technology continue to play a role in the reduction of losses and the severity of oil spills as detection devices become increasingly sophisticated.

RENEWABLES

Renewable energy, particularly solar and wind farms, has been challenging in recent years due to an increase in claims from natural catastrophes (i.e. wildfires, storms, hail, etc.). Premiums have risen as a result. Insurers are weighing this sector as respects the potential opportunity to expand versus the risks involved, and markets are currently limited. Some insurers have reduced capacity or exited the marketplace, which has led to less competition and tighter underwriting guidelines. Demonstrating risk management and loss mitigation to protect renewable energy projects is key to obtaining the best terms and pricing.

PROFESSIONAL LINES

As a commodity, energy remains a solid sector for insurers. Most energy entities are doing well, especially exploration and production (E&P) companies. Investors are more attuned to the fact that the price of oil can rise and fall based on demand and other factors. However, the more financially leveraged an energy company is, the more difficult a risk can be to place.

Overall, the professional lines market remains soft across the energy industry. Directors and Officers (D&O) coverage remains particularly soft. The cyber market for the energy industry is shaping up similarly to the D&O market. Claims are generally unrelated to the volatility of oil prices. There are an abundance of cyber carriers writing energy, but it’s still critical that all proper controls such as multifactor authentication (MFA) and end point detection and response (EDR) be in place.

Some insurers continue to take a very tough stance on energy based on environmental, social, and governance (ESG) guidelines. For example, coal is challenging and has far fewer coverage options. Many carriers are adopting supportive rather than exclusionary approaches to those transitioning toward newer energy technologies and addressing emerging risks associated with the transition to options like carbon capture and storage, or hydrogen.8 Outside of accounts that represent ESG concerns, there are multiple carriers and plenty of capacity available.

BOTTOM LINE

In summary, it is wise to take a long view of emerging risks including transitions toward newer energy sources, geopolitical developments, and the evolving macro-economic environment as these issues may converge to create new risk considerations. As a whole, the energy industry will continue to adapt, and strategic decision making will be crucial moving forward.8

Energy accounts with clean loss records, best practices in place with respect to contract management, as well as positive relationships with underwriting should experience favorable results in the marketplace. The importance of a transparent relationship between the insured and the underwriter cannot be overstated. Oilfield services clients with negative claim histories and a large fleet would be advised to begin the renewal process early to allow time for underwriting meetings and, if necessary, procurement of alternative options. As always, insureds should be encouraged, when meeting with underwriters, to differentiate their risk from others and highlight their proactive risk management practices.

CRC maintains a longstanding in-house oil and gas program for primary general liability and excess as well as London facilities for control of well, and excess placements to serve your clients’ needs. Reach out today for assistance with your energy industry accounts.

CONTRIBUTOR

• Brent Belman is the Office President at Energy Technical Underwriters, a division of JH Blades & Co., Inc.
• Geoffrey Messer is a Professional Lines Broker with CRC Group’s Dallas, TX (Tollway) office.
• Cindy Brincks is Senior Vice President with CRC’s Energy Team and Shelley Compton-Bulls is a Vice President with the Energy Team. Both are part of CRC Group’s Dallas, TX (Walnut Hill) office.

END NOTES

1. U.S. Produces More Crude Oil Than Any Country, Ever, U.S. Energy Information Administration, March 11, 2024. 
2. Oil production in the United States from 1998 to 2023, Statista. 
3. Crude Oil Production, Enerdata. 
4. Global oil production share 2023, by country, Statista. 
5. Oil consumption in the U.S. 1998-2023, Statista. 
6. Nuclear Verdicts Surge to $14.5 Billion in 2023, Report Shows, Insurance Journal, June 3, 2024. 
7. Leading oil-consuming countries worldwide in 2023.
8. Energy market in state of stark divide amid turbulent geopolitics and instability – WTW, Insurance Business America, April 17, 2024.