Captive Insurance Trends in the Oil and Gas Industry
By Tomas Escamilla and Jorge Cardona, EWI Risk Services
Oil and gas companies are expanding their utilization of single parent captive insurance companies as a more cost effective tool to syndicate risks and achieve potentially broader coverages for potential liabilities.
The trends include:
• As a result of the Macondo well spill in the Gulf, companies engaged in offshore exploration and production are examining the captive concept as part of broader enterprise risk assessments to expand capacity and achieve tailored coverage via manuscripted policy forms with reinsurance support; to expand protection from such events.
• Domestic natural gas producers are embracing the captive concept due to potential higher environmental liabilities resulting from the use of hydraulic fracturing techniques and its effect on deep underground water reservoirs.
• Other companies including the majors are using their captives in more creative ways in order to offer environmental impairment property coverage as well as pollution liability, property, business interruption and workers compensation coverages. In the area of employee benefits they are using captives to offer enhanced group life, and long-term disability coverage to employees, and to capture superior experience from their employees compared to standard group rates in the fully insured benefit market.
In hard or soft insurance pricing markets, captives offer great leverage to influence positive behaviors due to the embedded unique relationship between insurer and insured as a long-term value accretion and risk management tool.