Lloyds List: Insurers flag up their safety role

Published: Jan 18, 2007

IN the controversy over energy company negligence, the insurance industry has raised aloft the banner of best practice and supply security, writes James Brewer.

With BP humbled over the lack of safety procedures which led to an explosion at its Texas City refinery in March 2005, and embarrassed by a pipeline breakdown a year later, insurers say that their industry has a valuable role to play in improving standards in the industry.

Equally, they are standing by to support BP, Shell and others in opening new oil fields and territories with the safeguard of innovative insurance products. At a hearing on energy security questions, members of the UN committee on sustainable energy have been told by the committee’s financial services representative, Magne Seljeflot, chairman of Aon Natural Resources, of the role the insurance industry can play by applying risk mitigation.

He added that the insurance industry will be crucial in enabling politicians and businesses around the world to deliver on their pledges to cut CO2 emissions.

Mr Seljefot said: ‘At the end of 2006, strong growth in demand for hydrocarbon based energy coincided with concern over future reserves, security of transmission and energy prices at an all-time high. The continuing quest for new oil and gas fields takes us further into remote and ‘unchartered’ territories.’ Only a handful of the largest companies had the ‘financial muscle’ to consider exploration and development in the new territories, given the costs and risks involved.

‘To succeed in exploring, developing and bringing energy to market can be a mammoth technological and economical undertaking.

‘Without the partnership with insurers to reduce risk factors, this would often not be possible. Look, for example, at the development of the North Sea in the 1970s.’

Mr Seljefot said that in 2005 insurers paid out claims in excess of $10bn for losses to the energy sector, against $4bn-6bn in an average year.

Leakages which closed the transit line from the huge Prudhoe Bay oilfield, and the explosion at BP’s Texas City refinery, among others, raised the question of safety standards in the industry.

Mr Seljefot stressed that highly qualified and experienced engineers employed by the major insurers had a valuable input to establishing best practice and raising the ‘red flag’ when they saw safety being compromised.

The insurance industry could act as a conduit between politicians and hydrocarbon businesses to ensure the safe and reliable supplies of energy around the world.

‘This is particularly important at a time of strong demand for energy from China, India and others along with rising geopolitical supply risks in the Middle East and Russia.’

 

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