Pilko & Associates brings quarterly industry insights to Energy and Chemical leaders who are responsible for managing and mitigating Operational/EHS Risks.
Current Insurance Trends
Jim Pierce, Chairman of Global Energy and Power at Marsh JLT Specialty (Bio),provided the following insights on current insurance trends:
Underwriters have reduced capacity to insure Refining and Petrochemical companies for major incidents as a result of major losses in these sectors globally since 2016. The Midstream sector is also feeling the similar, but not as severe, pressures.
- The result has been larger Retentions, increased Premiums and lower Limits for property and BI
- This trend is expected to last for several years.
The net result is that Corporate Officers and Boards will have greater incentives to aggressively manage Operational/EHS Risks in order to reduce the probability of catastrophic incidents.
Focusing on Catastrophic Risks have become a key component of overall Enterprise Risk Management (ERM) for several reasons:
- Corporate Executives and Board Members have witnessed various companies, ranging from Boeing to Texas Petrochemicals, experience Catastrophic Events which have been devastating from financial, reputational and human perspectives.
- Many existing ERM efforts have been judged to be inadequate in effectively identifying, prioritizing and
mitigating Mission Critical Risks essential to the wellbeing of the corporation.
- Upon close inspection, many ERM activities were deemed to lack sufficiently granularity or robustness to be effective.
In the energy and chemical industries, Operational/EHS Risks are clearly Mission Critical, yet companies have a false sense of security given that they have:
a) Management Systems,
b) Detailed Compliance Audits, and
c) Policies, Procedures and Practices aimed at Safe and Reliable Operations.
Too often energy and chemical companies overlook:
- Risks inherent in aging physical facilities which may require more than routine Maintenance to operate Safely and Reliably.
- Risks in the first year of operation after Startup of a major new project.
- Risks surrounding Acquisitions, Mergers and Divestitures when operating personnel and leadership can be diverted.
- Risks during shutdowns, maintenance and restarts associated with Turnarounds.
- Gaps or shortcomings in Leadership, Culture and Competency which are often internal Blind Spots for a corporation.
- The cumulative impacts of cost and staffing reductions on Risks.
- The opportunity to Learn from Incidents and Near-misses.