Source: http://www.businessinsurance.com, March 6, 2017
By: Gloria Gonzalez
President Donald Trump’s energy infrastructure push may create business opportunities for insurers, but they will still likely be wary of some of the projects due to their environmental risks.
Robert Hartwig, clinical associate professor in the finance department and co-director of the Center for Risk and Uncertainty Management in the Darla Moore School of Business at the University of South Carolina in Columbia, called the Trump administration’s policies towards the domestic energy industry “an unambiguous positive” for the property/casualty industry.
The commercial insurance sector is awash with capital and “would very much welcome the opportunity to put some of that capital to work,” he said.
While there is sufficient capacity for many energy infrastructure projects, certain types of projects present challenges.
Petroleum projects are typically the most difficult energy projects to insure, as insurers tend to be cautious about the associated risks such as off-shore drilling incidents, fire or concerns about shale gas, said Richard Sheldon, Radnor, Pennsylvania-based environmental practice leader and head of environmental broking, for Willis Towers Watson P.L.C. Electrical generation and renewable energy projects tend to be more acceptable risks for insurers, he said.
Roughly 50 insurers will provide some form of pollution legal liability coverage to energy projects, but for riskier classes such as petroleum pipelines, “that window closes very quickly to the point that you only have two or three markets that would consider that risk, if at all.” Severity and frequency serve as the basis for how underwriters price the risk of potential losses related to the transportation of petroleum, said Bill Helander,
executive vice president at JLT Specialty USA, based in Houston. Transporting oil by truck is more likely to result in an accident than if the oil is transported via a pipeline, he said.
“But generally when it does happen, it’s not as severe of an event as a massive breach in a pipeline or an explosion in a pipeline,” Mr. Helander said. “When we’re looking at pipeline risk, we’re talking about $10 million, maybe even $25 million, tranches of liability afforded by a single insurer,” so losses can be significant, he said.
Mr. Sheldon said he expects insurers will be able to handle an influx of new energy projects, but petroleum projects will remain a more difficult class to place.