American Oil and Gas Reporter - December 2020 - 62

SpecialReport: Insurance Update

JIM CONROY
Vice President and Practice Leader,
Oil and Gas
Travelers

It is hard to imagine a more tumultuous year
than 2020. The pandemic affected all aspects
of daily life, and was a major disruptive event in oil and
gas markets. What will be the net effects on upstream
insurance and risk management? How is the experience
of 2020 shaping upstream insurance trends for 2021?
CONROY: I don't think anybody is going to be sad to see
2020 in the rearview mirror, least of all the oil and gas industry.
The economic slowdown resulting from the pandemic and the
subsequent drop in commodity prices have depressed the
industry's incentive to explore and produce. Our premium levels
rise and fall with our customers' insurable exposures, and oil
and gas companies have presented lower payrolls and revenues
this year as they have hunkered down and waited for the
economy to recover.
During periods of low activity, operators may need to shift
focus or use remote monitoring to spot issues they normally
would catch during day-to-day operations. For example, when
operators visit a site less frequently, they have a lower chance
of catching a small leak or other problem before it becomes a
major issue. When employees are on site less often, the risk of
trespassers and vandalism also grows.
From a workers compensation standpoint, companies have
had to add COVID protocols. The good thing about oil and gas
relative to sectors such as retail or restaurants is that much of
the activity happens outdoors and at remote sites. Also, workers
are used to wearing personal protective equipment such as
proper boots, hard hats and safety glasses, so wearing masks
when work needs to be done in close contact to other people is
not as disruptive as in other sectors.

With pending distribution of multiple vaccines,
analysts forecast U.S. drilling and completion
activity will continue a gradual, albeit tempered recovery.
What are the primary risks from an insurance perspective
as operators start putting drilling and completion programs back on the calendar? Are there any policy types
or coverage areas of particular concern?

CONROY: From an insurance standpoint, the first concern
during recoveries is the availability of a quality labor force.
62 THE AMERICAN OIL & GAS REPORTER

How big of a concern should it be in 2021? That depends. In the
2008 downturn, oil prices fell steeply, but recovered quickly.
That made people easier to hire than after the 2014 downturn,
when it took twice as long for activity to come back and many
workers had already found jobs in other sectors.
As difficult as it has been, oil and gas companies are likely
to have an easier time hiring employees coming out of this
downturn than they did in 2017, when they began rehiring after
the downturn of late 2014. That downturn was more specific to
oil and gas, and the general economy remained reasonably
good. As a result, many displaced workers ending up leaving
the industry to jump into construction and other fields.
Since this downturn is largely related to COVID and has had
an economic impact on almost every industry, fewer workers
are moving to other sectors, at least so far. To the extent activity
starts up again soon, companies will be able to rehire many of
the same workers, meaning they'll be ramping up with welltrained and experienced craftsmen. Those who rejoin their
previous employers also will be familiar with company-specific
crew management and safety protocols. However, if the downturn
lasts longer than expected and companies have to hire more
new workers, injuries are more likely because people will be
less familiar with the work.
Another concern is auto insurance. As the economy recovers,
employees driving company vehicles once again will be sharing
congested roads with people who often are distracted by
electronic devices. The best way to mitigate auto risk is going
back to basics of being careful about who gets hired and making
sure anyone with driving responsibility is qualified and has a
good driving record. Many insurance carriers will share best
practices related to driver selection and training, as well as
telematic devices, which are increasingly being used to monitor
vehicle usage and driving patterns.

Numerous factors can weigh in on insurance
costs. What do you see with respect to general
cost trends in 2021? After several years of relatively
quiet hurricane seasons, 2020 was the most active on
record. How might hurricane-related losses along the
Gulf Coast influence insurance markets going forward?
CONROY: One of the biggest trends we are watching is inflation of damage awards that may be covered by auto or
general liability insurance. This is driven by many factors,
including the costs to repair more sophisticated vehicles, rising
healthcare costs, etc. So, if a customer gets sued, a traditional
$1 million primary insurance limit may not go as far as it once
did. That means customers may have to consider higher limits,
which could add to their insurance costs.
Hurricanes are a classic Gulf Coast property risk both on
and off shore. Elevated hurricane levels can affect insurance
costs depending on the extent property is in harm's way. While
2020 experienced a record of natural catastrophes, there has

American Oil and Gas Reporter - December 2020

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