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Southern storms could further push energy insurance



The series of winter storms and freezing that hit Texas and other states in mid-February is likely to exacerbate speed-tightening and tightening conditions in the energy insurance market, industry experts say.

Power outages and rolling outages in Texas disrupt many industries, including energy and power companies across the state and beyond, reflecting their increased exposure to business outages, they say.

Potential physical damage and business interruption claims are still under investigation and will be determined, says Robert Albino, CEO of Marsh JLT Specialty in New York.

While some companies are working again, others are in the process of ensuring that they resume operations in a safe and reliable manner.

Based on early feedback, there is potential for preserving property type claims, says Albino. Many customers took further steps to protect their assets when they either lost power or had to shut down due to public conditions, he said.

For the energy and power industries, time element coverage is usually dependent on initial physical loss or damage. to trigger and usually comes with a long deductible period that must be met before there is a chance of recovery, he said.

"It is about documentation and ongoing investigation of what happened at each facility and then how it matches to the respective insurance program that each individual customer has," says Albino.

In general, the market still sees price increases and capacity reductions, and depending on the level of damage, this may worsen conditions, Mr. In Albino. Police language and deductible structures will be reviewed by policyholders and insurers, he said.

"It exacerbates an already difficult situation," says Leonard M. Forey, Head of Regional Partner East Texas at Higginbotham, an insurance company in Fort Worth, Texas.

The energy market has already hardened but how much the storm adds will depend on how much of the loss is absorbed by insurers, he said. Larger operators such as refineries and chemical plants, which felt more of the impact of the storm, tend to bear much of the cost themselves, he said.

The storm had a major impact on the downstream oil and gas industry and the power industry and the loss projection could be in the billions of dollars, Forey said. "Facilities in the south are just not focused on taking the extreme temperatures if they are going to last for a long time," he said.

In general, business interruptions tend to have a much greater economic effect than the underlying property damage. , says David Robertson, Los Angeles-based global head of energy risk consulting at Allianz Global Corporate & Specialty SE, part of Allianz SE.

Over the years, there has been a movement towards larger facilities and equipment, more complexity and concentration in a single area and more interconnection between the supply chain, he said.

"What 25 years ago may have been a small pump fire at a plant, now the pump itself can be three times as large, the plant can produce twice as much or triple what it did, so the exposure to business interruptions is significantly higher", he said.

A severe winter storm in 201

1 also saw Texas experience freezing weather that led to extensive power outages. This was followed by several winter weather in 2014 and 2017.

Whether companies see the February storm as an aberration or which are likely to recur on a more consistent basis will determine whether they go through the extra cost of protecting themselves against such events. In Mr. Foley. "When you talk about income and production that they lose, it can motivate them to take further steps in the future," he said.

Texas does not see cold temperatures as often, but this event highlights the importance of winterization, said Robert Robertson. "It's about the preparation and maintenance of real estate."

These large losses are characterized by several rare and unexpected situations that occur simultaneously, he said.

"In this case, we had an Arctic freeze for a long time that suddenly reduced gas production, and then power production was affected by both the cold weather and the loss of fuel gas, and then these inadequate winter programs worsened operating performance up and down the supply chain. Said Robertson.

All of this happened while the demand for power and gas increased dramatically, and then it was exacerbated by the loss of water supply, he said.

Completing a winterization checklist can help companies minimize damage that can arise from winter weather, he said.

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