“Significant movement” in energy claims environment

Joe McMahon discusses the highs and lows of claims activity in the energy sector.

Energy claims have undergone a period of significant upheaval in the last 12 months, characterized by a fall in claims frequency and a sharp rise in claims size. “The drop in claims is driven primarily by the sharp fall in oil prices plus a relatively benign loss period and lack of major storms,” explains Joe McMahon, chairman of Lloyd Warwick International (LWI). “However, we’ve also seen some of the largest mining, construction and operating claims ever to hit the sector.”
Falling oil prices are having a widespread impact. “This is having multiple ripple effects,” he explains. “There are fewer construction, exploration and drilling-related claims as many projects have been shelved because of financial constraints.” This constrained environment is, however, also resulting in increasing smaller claims, particularly in U.S. drilling. “Normally, such claims are too small for most companies to pursue; however, current cash-flow challenges are forcing them to reconsider.”
At the other end, major claims have impacted many sectors, including mining and construction. While harder to attribute specific causes, oil price is again a contributor. “Take petrochemical ethylene production or oil refining,” he says. “Low oil prices mean that margins in these areas are extremely high, which leads to significantly larger business interruption claims in the event of a loss.”

For LWI, despite falling claims volumes, business is brisk. “Our clients are placing ever greater demands on us,” he says. “We are under increasing pressure to deliver the very highest standards to ensure that we meet this demand.” Operating primarily within the energy, marine, mining, power and special risk sectors, the firm’s global reach spans 144 locations. “We’re investing in new capabilities and technologies to respond quickly to incidents anywhere in the world to ensure a speedy claims resolution,” McMahon adds. “It’s the nature of our market.”

April 2016