Brokers tell US Senators cover faces cuts while prices rise

Specialist broker Lloyd & Partners has told US senators there will be a 15% fall in capacity for oil company pollution insurance because of the spill in the Gulf of Mexico, Dow Jones reports.

At least one major energy liability insurer has already cut back coverage it will offer to companies by a third, and prices are likely to rise significantly, it said.

John Lloyd, the chief executive of the brokerage, predicted "pressure from both sides of the supply-and-demand equation as capacity shrinks and demand for higher limits materializes."

Democrats try to increase claims

Brokers gave their analysis as Senate Democrats proposed raising the cap on damage claims that BP must pay for the Gulf of Mexico oil spill.

Houston-based broker Alliant Insurance Services warned that increasing the liability limit would prevent operators in the Gulf from obtaining adequate insurance. The current limit under the US Oil Pollution Act is $75m.

"In our view, only major oil companies and National Oil Companies will be financially strong enough to continue current exploration and development efforts" if the cap were raised substantially, wrote Benjamin Wilcox, an executive vice president at Alliant.

Republican Senators led by Alaska’s Lisa Murkowski blocked the attempt to raise the liability cap.