With technological innovation swirling around the insurance industry, the pressure is on for the sector to move with the times – and now, more weight has been heaped on to the modernisation argument by the power industry.
At a panel discussion at this month’s Onshore Energy Conference in London, the panel and audience came to the conclusion that the London insurance market is ‘overly complex’. An audience of more than 200 insurance professionals and risk managers voted by 75% to agree with the statement that ‘the insurance industry is full of complicators and not simplifiers.’ Indeed a meagre 3% disagreed with the statement.
Discussions raged as to whether the insurance industry should consider unbundling its products and separate risk management from risk engineering.
“The level of risk we face is no less than 20-30 years ago but it has become more complex to understand,” commented Gustavo Penas, Shell’s VP risk and insurance. “The insurance market helps us to assess, understand and quantify that risk. Then it helps to transfer the risk if the owner doesn’t want it. While the first part of that process is still relevant, the second part is fading away as energy firms have large balance sheets so can retain the risk.
“Some 10 years ago, we at Shell concluded there was not enough value in transferring risk to the insurance industry. It was too complex and too costly. The insurance industry is not ticking the boxes for us in terms of relevance to our risks. Our exposures are massive but the market is not here for us.”
Furthering the debate, Joe Meaney, VP global insurance and risk engineering for energy business at the AES Corporation, commented that without doing a better job, strong new entrants to the power segment like Google would not need commercial insurance because their balance sheets are so strong.
“I get paid for bringing the best possible solutions to manage our risks,” said Meaney. “That means I have to find the best solution. Our captive has functioned well, which is sad because I would have hoped that the insurance market could produce a better solution. If insurers help me to be the solutions person, we’ll always do business.
“The good news is that risk is not going away. The bad news is that insurers need to stop complaining about price and change – about how things aren’t what they used to be.”
“The fact that global energy consumption is forecast to continue growing for the foreseeable future presents real opportunity to the market,” added Luis Prato, XL Catlin’s energy regional product leader for UK & Ireland. “Energy companies are facing ever increasing technical and business risks, for which the insurance industry is ideally positioned and capitalised to provide solutions.”
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