Capacity crisis imposes new limits on `struggling' energy market

Underwriters in the "struggling" energy market are being forced to insure risks at the maximum estimated loss instead of at their total value.

Currie & Brown appraisal spokesman Tony Prior said the new underwriting limits had been imposed because of a "capacity crisis". This means insurers are now insuring energy risks, such as big petrochemicals plants, oil refineries, gas plants and power stations, at their loss limits (the maximum estimated loss). Underwriters usually insure onshore and offshore risks for the total amount they are worth.

Prior said this meant if a risk were valued at $2bn (£1.36bn), but was insured for its loss limit of $850m (£579m), the policyholder would be forced to pay for the shortfall in the event of a loss.

He added the collapse of the Australian reinsurance market at the beginning of last year contributed to the shrinkage of capacity, but the World Trade Centre tragedy exacerbated the problem. It sparked rate rises of up to 300% in the energy sector.

"Although there is new capacity in the market now, there is less than there is going out so the result is downsizing," said Prior. "The energy market is struggling."

Currie & Brown manages and surveys construction and energy risks in 40 countries. It employs about 1,000 working surveyors.