Oil, Gas Insurance Market Tightens

For several years industry observers have known that crude oil and natural gas exploration and production continue at near record levels with no let up. Reflecting the sector’s economic health, the U.S. drilling rig count was 1,928 in late July, up 7 percent from a year ago, according to Baker Hughes Inc.
Accompanying that surge in the petroleum sectors is a tightening in the oil and gas insurance sector.
Producers are churning through the unemployment lines looking for qualified individuals, said one insurer who specializes in the oil and gas industry.
“The biggest problems are finding qualified people to work in the oil field,” said Joe Kem, CPCU, the branch manager at Bituminous Insurance Cos. in Oklahoma City.
And, sadly the insurance woes are over basic areas, he said. Today companies struggle to hire and keep people on the payroll when they are required to do a lot of driving.
“They are not finding good drivers,” he said. “They are going through a lot of people that insurance companies cannot approve.”
Numerous people have DUIs and a string of speeding tickets, Kem said.
Another arena in which energy companies battle for good insurance rates is workmen’s comp.
“Too many folks are drug users,” Kem said. “And that is not a good thing on a rig.”
Tough Getting Insurance
Underwriters are taking a hard look at the level of experience, age of the equipment and the depth and breadth of the operation in putting together the policies for drillers, said Larry Gibel, president of the Ohio-based National Drillers’ Association, in explaining part of the reason for the difficulty companies have finding insurance.
“It is a challenge for us,” Gibel said. He is also the owner of his own oil company.
Gibel pays about $40,000 annually for premiums. He’s been attempting to use the NDA to create a captive insurance company — an insurance company set up to provide coverage at a lower cost than available by going through the general insurance market.
“It has been hard to get going,” he said.
Pollution coverage is one area that is growing, Kem said.
“Pollution coverages for the oil and gas industry, which commonly address “sudden and accidental” pollution, is not a problem.
“It is more readily available in the market. And, rates continue to decline,” Kem said.
As always, frequency is a bad thing when it comes to insurance claims, Kem said.
“If a company turns in a lot of claims, they will have a harder time getting insurance,” Kem said. “Frequency vs. severity — you are expected to have a bad loss once in a while.”
Kem stressed that oil and gas operators make sure their insurance provider specializes in oil and gas.
“Specifically downhole problems, explosions, cratering. If a company is not familiar with those coverages, the operator could be exposed with liability that they were not aware of,” Kem said. “Read the policy to make sure you have the right coverage.”

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