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Lloyds List: Damage to reputation gives energy giants sleepless nights

By: Brand concerns beat catastrophes as top bugbears, writes James Brewer, Lloyds List: Published: Dec 19, 2006

BIG energy companies are far more worried about damage to brand and reputation than natural catastrophes that can hit their installations, a survey by Willis broking group has shown.

Willis asked senior risk managers from BP, BG, Chevron, Borealis, Shell, Petroplus, Hess Corp and MOL to list their most pressing risk management concerns.

Reputation issues were top of the list, believed to be spurred by such crises as the Enron meltdown, potential environmental disasters, refinery explosions, pipeline corrosion, a failure to find oil in promising areas and disruption of the integrated gas chain.

Energy majors ranked environmental risks as the second most serious threat, followed in that order by regulation and legal environment, business interruption, explosions and fire, terrorism and political risks, executive risks and corporate responsibilities.

Next came natural catastrophes, then electronic system risks.

Philip Ellis, chairman of Willis Global Energy, said reputation is a priority because companies fear investors might lose confidence in the reliability of an enterprise. This perspective in part reflects the fact that risk managers are now part of risk committees chaired by chief financial officers and chief executives.

The survey, conducted for the latest edition of the Willis Energy Market Review, showed an increased focus among the larger energy companies on the development of self-insured retentions and the use of captive insurance companies.

Several respondents suggested that the only practical solution for some of their more crucial risks would eventually come from the market for alternative risk transfer.

This for some would be important to offset what they see as the dominance of a select group of leaders from the traditional insurance market.

Willis said in its review: ‘Perhaps it is up to all of us within the insurance community, brokers and insurers alike, to provide fresh products and services to buyers before the drift away from traditional risk transfer becomes ever more commonplace.’

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