Rig cover will rise as much as 30%, liability prices double
Lloyd’s chief executive Richard Ward has told Bloomberg insurance coverage for offshore oil rigs in the Gulf of Mexico will rise between 15% and 30% after BP’s Deepwater Horizon spill.
“Prices will have to go up in the Gulf of Mexico. We’ve seen very low prices for covering these offshore installations over many, many years. People recognise that the risks they were pricing a while ago were underpriced and they need to restore pricing levels,” he said.
Lloyd’s estimates its insurers will pay out $300m to $600m in claims related to the rig. The disaster may cost insurers as much as $3.5bn, the biggest man-made insurance loss since the September 11 terrorist attacks in New York, according to Swiss Reinsurance Co.
100% liability rises
Some Lloyd’s of London insurers, including Hiscox and Beazley say prices for liability insurance, which pays out for pollution, litigation and third party claims, have doubled following April’s oil spill.
Oil and drilling companies that have had losses in the past year have had their liability premiums rise by more than 100%, said Simon Williams, head of Hiscox’s marine and energy unit. Other firms have been quoted prices at least 25% higher, he said.
“This is the event that’s cracked the market,” Williams said. “We’re seeing increases and we’re keen for that to happen.”
Backdate limit raised
Lloyd’s insurers are “concerned” about a proposal by the U.S. government to raise the cap on liability claims to $10bn from $75m under the Oil Pollution Act of 1990 and may raise prices accordingly, Ward said.
“The liabilities that you now face in the sector assuming OPA goes through and it’s retrospective, is pretty significant,” he said. Offshore energy insurance “has been unprofitable for probably 24 years out of 25 so we need a significant price adjustment for that area to return to profitability.”