The energy insurance market is showing signs of continued softening, with capacity at an all-time high, according to the latest Energy Market Review from Willis, a WTW business.
Insurers are navigating a delicate balance between profitability concerns and the pursuit of market share, creating conditions that continue to drive competition.
In the downstream sector, rate reductions are becoming more prominent after a relatively quiet loss year in 2024. However, the first quarter of 2025 has already seen $1.5 billion in potential losses, surpassing the total losses of 2024. This could influence the trajectory of market softening in the coming months.
As competition increases among insurers, energy companies in the downstream market may find opportunities to manage volatility, particularly those prioritizing rate optimization, the report said.
The upstream market, which has seen a 5% growth in capacity, is benefiting from a quiet year for losses. This growth continues to fuel soft market conditions. Insurers are under pressure to expand their market share, which has led to reductions in rates and an increasing willingness among underwriters to take on leadership roles, further contributing to downward pressure on pricing.
Despite this, many insurers have already filled their 2025 budgets with construction business, even though this area has historically been a challenging segment due to poor loss performance.
While international liability markets have seen profitability in recent years, the US casualty market remains an exception, as social inflation drives up the size and frequency of settlements. This has prompted insurers to adjust their approach to limits and premiums, particularly in the North American energy casualty market.
While primary liability remains stable, the oilfield services sector continues to face challenges related to high loss frequency and severity.
Rupert Mackenzie, global head of natural resources at Willis, noted that the energy sector remains a key area of interest for capital providers, which is driving increased competition.
He highlighted a trend toward a "flight to quality," where desirable risks are able to secure more favorable terms. However, profitability remains a challenge for insurers across the sector.
The report also addressed the role of energy storage in the transition to clean energy. As electrification grows, the demand for reliable and efficient energy storage solutions is increasing. While these innovations help improve grid stability and resilience, they also introduce new risks, such as supply chain disruptions and safety concerns.
Marie Reiter, global head of broking strategy for natural resources at Willis, pointed out that 2025 will be a critical year for the energy transition.
She encouraged energy companies to focus on risk management strategies and collaborate with insurers to develop tailored coverage solutions that can support both short-term investments in fossil fuels and long-term decarbonization goals.
