Munich Re takes centre stage in Monte Carlo with oil rig plan

The plan was announced by Torsten Jeworrek, board member at Munich Re, and followed hot on the heels of his keynote speech at the DVS annual conference where he suggested that brokers, insurers, reinsurers and insurance buyers need to enter into a new spirit of more transparent partnership to tackle such emerging risks more effectively. Munich Re's plan met with a mixed response from rival reinsurers in Monte Carlo. The Munich based group said that it hoped to gather broad industry support for a facility that would cover individual oil drilling operations, based on local liability law, on an annual per risk basis after risk management audits had been carried out for each operation. The group said that such a system could overcome the complex, expensive and time-consuming coverage system that currently exists by which each individual party involved in a project arranges their own coverages and then argue about whom is responsible for what after an event occurs.hideMr Jeworrek said that Munich Re believes that a better route for all concerned in such a sensitive and high value market would be to create an industry pool or preferably an insurance consortium, so long as antitrust problems could be clarified. Munich Re said it has $2 billion of liability cover available to kick start the concept and would hope to gather between $10bn to $20bn from the wider industry. The day after Munich Re made its suggestion Hannover Re agreed that the recent Deepwater Horizon oil spill had clearly shown the shortcomings in the offshore liability insurance market and that the scale and structure of the cover needs to be reconsidered. The German reinsurance group said that it was keen on the idea and confirmed that, if it could create a clearer liability situation for the operators, contractors and the insurers, then it would certainly support an industry-wide effort. Jürgen Gräber, Member of the Executive Board at Hannover Re, said: “The [Deepwater Horizon] property damage loss will be well covered. It is straightforward and everyone knows what percentage they have. The unknown and difficult bit is the liability element, which is the largest loss so far for the industry.” “There were many parties connected to the platform operation and now there is a discussion about who should take responsibility for what. This is complicated to work out who is responsible for what and what is the total amount of coverage available and the distribution of the claim will take years and years. We like Munich Re’s idea as it would lead to a much clearer liability situation. You would know what is available and you would not have to argue about liability with other parties. Therefore we would support this,” continued Mr Gräber. Swiss Re was not so sure when asked for its thoughts on the Munich Re proposal during its press conference later in the day and suggested that the matter was not as clear cut as its rival may have suggested. Brian Gray, CUO at Swiss Re, said: “The risk is significant and it is certainly insurable and there is enough capacity. The challenges come from the industry itself but the risk is insurable and yes Swiss Re is part of this. This is certainly something we could look at. We have not seen the technical details but, as an industry peril, we have an appetite for it.” Stefan Lippe, CEO of Swiss Re, said that the group had not had a chance to properly review the proposals and stressed that any effort would need policyholder support and it may not arrive as readily as imagined. “You have given us no more than one night to look at the details. We have to understand that it always takes two to tango. After three hurricanes a number of oil companies cancelled policies and this was not because there was no access to cover, it was because they felt they were making billions and could carry the risk themselves. So you have to ask will the clients really pay for such capacity when they didn’t when it really was not expensive?” he explained. Hannover Re’s Mr Gräber focused on more technical problems that would need to be overcome. He said that the cover would need to be mandatory in some form, as otherwise a sufficiently wide range of risks could not be gathered to make it insurable. He also pointed out that at least five proposals of a similar nature had been mooted by the big reinsurance brokers and Lloyd’s and that it would need these to be merged to focus on one effort. And he added that any plan would need the support of the big primary insurers. Ulrich Wallin, CEO of Hannover Re, warned that $10bn to $20bn of capacity is a “very ambitious” limit and would be “challenging” for the market. He also said that Hannover Re would not match Munich Re’s proposed $2bn contribution. Many market insiders during the Rendez-Vous pointed out that it would be a huge effort to try and launch such an industry-wide effort for this highly sensitive market, particularly as it would need US government support. The US government is known to be keen to see an increase in the current $75m liability limit under the Oil Pollution Act but Congress elections are nearing and action would be required very quickly for it to work, they pointed out. Some also pointed out that such an effort would not work if it was left to the reinsurance market alone and said that the big primary insurers would need to become involved too. Most agreed, however, that despite such big hurdles, Munich Re had made a positive step forward that should be considered seriously by the market and customers to try and tackle a fast growing problem area.

Munich Re takes centre stage in Monte Carlo with oil rig plan

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