Marsh finds link between oil price falls and major energy losses

In a research report released at Marsh's National Oil Companies (NOC) conference in Dubai this week, the broker unveils stats that show oil price falls generally lead to significantly larger insured energy losses. Marsh's Can Energy Firms Break The Historical Nexus Between Oil Price Falls and Large Losses? research shows that insured losses in the global upstream energy sector reached a peak in the 1980s shortly after the price of Brent crude oil fell from $35 to $15 per barrel. This cycle occurred again in the late 1990s, when the price fell below $10 per barrel and in the years following the 2008 slump, when the price fell from more than $100 to $32 per barrel. "Historically, falling oil prices have prompted cuts in infrastructure and maintenance spending, and less investment in health and safety measures and employee training," said Andrew George, chairman of Marsh's Global Energy Practice. "Analysis of past cycles indicates that cost-cutting decisions were followed by an increased frequency of major incidents or large losses," he added.hideDue to the low oil price environment, energy companies are now shelving and cancelling new projects and reducing staff numbers. Marsh believes it may only be a matter of time before companies also reduce spending on maintenance, health and safety measures and employee training. "If this is the case, then, based on past experience, such cuts in spending will lead to an uptick in losses," warned the broker. To avoid a repeat of past experience, Marsh urges energy firms to maintain their investment in risk management, despite falling revenues, in order to reduce the potential for future major incidents and insurance claims. Marsh simultaneously released a new report that concludes energy firms in the Middle East have made big strides in risk management, delivering improvements above and beyond their global peers. Marsh's Benchmarking The Middle Eastern Energy Industry: Strengths & Opportunities Of An Energy Superpower paper flags a "marked increase" in the adoption rate and quality of risk management methodologies at Middle Eastern energy facilities between 2013 and 2015 in comparison to their global competitors. "Thanks to continued investment and boardroom support, energy firms in the Middle East have made major improvements in their risk management protocols over the past two years and many are now ranked among the world's elite in their approach to risk and emergency response," added Mr George. "Firms that have invested in risk management have seen real benefits. Energy companies should exercise caution when implementing cost-cutting measures in response to this latest downturn to avoid a repetition of the major losses that occurred in the past." Marsh also notes that energy firms are using the soft energy insurance market conditions to make savings rather than buy expanded cover. "Buyers continue to purchase largely 'traditional' policies, in an attempt to take advantage of the cost savings available from the current soft insurance market, rather than expand the protection they have in place and/or take advantage of new and innovative coverage options," said the broker.

Marsh finds link between oil price falls and major energy losses

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