Time for change? Dennis Culligan offers ideas
Is the energy market delivering the products its clients want or require? Dennis Culligan of risk, insurance and claims management company Longdown|EIC believes the energy sector and wider insurance market need to re-examine how they meet those needs and whether change is due.
There has been much discussion in recent months over the future direction of the market and there are those who believe the upstream product has not adapted to the change in market conditions – with some saying the issue is not simply confined to the marine and energy sector but across the broader insurance market. The message is that it is time for new some ideas.
The Offshore Energy Package policy has been the standard means of insurance cover available to Upstream Energy companies since the late 1970’s. Little has changed fundamentally.
The basic product – a single ground-up quota share policy in several sections – has remained substantially the same. Indeed, the typical Offshore Package comprises cover for Property Damage, Operator’s Extra Expense (Well Control & Pollution), Legal Liability, Business Interruption and Cargo.
The industry has not remained completely still. Some improvements have been developed – such as Pay On Behalf Of (POBO) for OEE claims but an Upstream Insurance Manager in 2017 is buying essentially the same product as his/her 1979 predecessor.
It comes at a time when the industry may be forgiven for pointing out it has bigger issues to contend with. The downturn in the oil price has coincided with a softening pricing market for both primary and reinsurance markets. Indeed, the industry is having to work out if the low oil price will be the new norm. The pricing environment has failed to change significantly for some time which again has the sector looking at a new norm where the rates of the past will not be seen again – barring a significant shift in the market.
As such both underwriters and brokers are seeing their margins squeezed.
Tight margins or not, the client remains the most important part of the equation that and at a time when the energy sector is still looking to recover from the impact of the oil price fall as they face new challenges.
Therefore, the market may well need to ask itself: is the Upstream Energy Packet still fit for purpose? Or, alternatively, if it isn’t broke, then it doesn’t need fixing?
My view remains that there needs to be change. The sector requires new innovative solutions. Those solutions will need to meet the challenge of delivering cover which is at a lower cost but remains relevant and effective.
Therefore, there is a current need for creative thinking in order to shape the market of the future. We are seeing the rising attraction to some form of self insurance and the threat that poses to the size of the risk pool.
We may well need to look at ways to structure products and potentially look at the ways in which the cover is layered.
The market does, however, have a range of risks which can be seen as potential opportunities. New markets continue to open up as technology allows access to new reserves of oil and gas.
We also see the potential for new products with cyber the obvious one. But we are seeing demand for cover for supply chain disruption where no physical damage has arisen and for the risks around field decommissioning.
Driving innovation and change is never easy and it will require expertise on both sides of the equation. Then again, the energy sector very rarely takes the path of least resistance.
The risks faced by the sector’s clients are changing and new products need to be created to meet those risks. They should be seen as an opportunity rather than a threat if approached as products which are offered in addition to the traditional core covers rather than instead of what has served the market so well but are now struggling to keep up with market dynamics.
Allianz expands AGCS in China and Indonesia
Allianz Global Corporate & Specialty (AGCS) is targeting further growth in Asia by expanding its presence in China and Indonesia, seeking to capitalise on opportunities from the growing insurance markets.
The company has commenced operations in Beijing, China and Jakarta, Indonesia, following the opening of its new branch office in South Korea in June.
The new Beijing division, located in China Overseas Plaza, is AGCS’s third in the country, after Guangdong and Shanghai. The expansion of the China operations is aimed at capitalising on products for engineering and liability as well as emerging opportunities in environmental impairment liability (EIL), entertainment insurance and global programmes.
AGCS has also appointed Megasari Manurung, underwriter for financial lines, and Indrajaya Wardhana, underwriter for engineering, based within Allianz Utama in Jakarta. AGCS operates as a division of Allianz Utama in Jakarta and will initially focus on financial lines and engineering products alongside the country’s robust economic growth and increased investment into infrastructure.
North P&I Club creates Brexit unit in Ireland
The board of directors of North and Sunderland Marine has agreed that a subsidiary insurance company should be established in Ireland to underwrite all future European Economic Area (EEA) business with effect from the 20th February 2019.
The move follows the result of the UK referendum on membership of the EU in July 2016.
North and Sunderland Marine currently rely on EU passporting rights to insure risks located in the EEA. Details of the future UK/EU trading relationship and its implementation are currently unknown and subject to ongoing negotiations between the EU and the UK government. However, expectation is that North and Sunderland Marine’s existing passporting rights will ultimately be lost either immediately upon termination of the UK’s EU membership or at the end of any agreed transition period, according to a statement.
North P&I Club is a global marine insurer providing protection and indemnity (P&I), freight, demurrage and defence (FD&D), war risks and ancillary insurance to 140 million gross tonnage (GT) of owned tonnage. Through its guaranteed subsidiary Sunderland Marine, North is also an insurer of fishing vessels, small craft and aquaculture risks.
The decision to locate the subsidiary in Ireland was partially driven by the fact that regulatory, legal and taxation framework in Ireland is similar to the UK, where North is an experienced operator. Ireland also offered a “mature regulatory system with substantial experience in the supervision of Solvency II insurance companies, a strong talent pool within the financial services sector, easy travel connections from Newcastle as well as the ability to conduct business in English, according to the statement.
The structure and local operations of the Irish subsidiary are subject to on-going investigation and a future announcement will be made in respect of these issues during implementation phase of contingency plans, which is expected to commence during the first quarter of 2018, the statement noted.
Saudi insurance market faces consolidation
Tightening solvency requirements are likely to drive consolidation in the Saudi Arabian insurance market in the next few years as weaker companies merge with stronger rivals, according to a Fitch Ratings report.
Regulatory reform could also help fuel growth, particularly in motor insurance.
Fitch believes that the Saudi insurance market is already subject to strong regulatory oversight, as demonstrated by conservative rules on investments and the regulator’s willingness to suspend firms from issuing new policies when deficiencies are identified.
Analysts expect capital requirements to be raised further and rules on internal risk controls to be tightened in the coming years.
Tougher regulations will put smaller companies at a disadvantage and the fragmented nature of the Saudi insurance market means consolidation is the likely outcome. There are 33 insurance firms listed on the country’s stock exchange, and 26 of them have a market share of less than three percent. Consolidation should strengthen profitability in the sector as the new larger firms will be able to benefit from economies of scale and reduced competition.
Foreign participation in the market is also increasing. Recent examples include BUPA’s increased investment in BUPA Arabia and Allianz Group’s increased holdings in Allianz Saudi Fransi Cooperative Insurance.
Insurance penetration remains relatively low despite strong growth over the last decade, and the sector is highly focussed on just two product lines, motor and health. Additional regulatory reforms, including the decision to allow women to drive from 2018 and measures to more effectively enforce compulsory motor cover, are therefore likely to fuel further growth.
KBRA registered as rating agency in Europe
Kroll Bond Rating Agency Europe (KBRA Europe) has been registered as a credit rating agency in Europe by the European Securities and Markets Authority.
Based in Dublin, KBRA Europe aims to provide the global capital markets with timely, accurate and transparent credit analysis.
As part of its move to Europe, KBRA has hired a number of rating analysts to provide services across the structured finance, financial institutions, project finance and corporate markets.
“We look forward to serving investors and providing all market participants globally with an unparalleled view on ratings accompanied by the most thorough, detailed, and timely analysis and research,” said Jim Nadler, president and ceo of KBRA.