Feb 2020

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Quarterly Newsletter

Industry Insight: Did you know? Current Insurance Trends

Operational Excellence

Pilko & Associates brings quarterly industry insights to Energy and Chemical leaders who are responsible for managing and mitigating Operational/EHS Risks.

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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
    policies.
  • 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.