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Soaring oil and gas prices create gaps in insurance coverage: Lockton

Pumpjack oil derrick and refinery plant in West Texas.jpg

Insurance limits may no longer reflect the value of assets handled by oil and gas companies, as a market driven by constrained supply and rapidly growing demand has inflated asset values, Lockton said.

If not addressed in insurance policies, the price surge could leave some players in the energy sector uninsured as values exceed insurance limits.

The crude WTI oil price doubled in the past 12 months, trickling down the value chain and inflating the value of an extensive list of petrochemical products, the report noted.

Energy prices also soared 1.3%, including a 1.2% jump in the price of gas. Gas prices have jumped 42.1% since September 2020, according to the latest report by the Labor Department.

Following the spike in oil prices, some experts predict that a continued recovery in demand could widen a “persistent” supply shortfall and extend the oil price pressure into 2022.

“Cargo owners need to be aware of the consequences of the rise in oil and gas prices as it may result in their assets being underinsured,” Lockton said.

“Companies affected may want to introduce measures tor reduce their risk exposure and/or look into to increase the insured limits with their incumbent insurer.”

“In case that their local insurer has already reached the underwriting capacity limit, the company can explore alternative insurance or co-insurance solutions or add an excess layer,” the report added.

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