American Oil and Gas Reporter - December 2020 - 67

SpecialReport: Insurance Update
provisions are not satisfied (e.g., a slow leak that is not discovered
until months or years later) would be excluded from coverage
under the general liability policy. General liability also will
exclude naturally occurring radioactive material, which is problematic in certain parts of the country and can be covered under
an environmental policy.
Bonding also is presenting its share of challenges. Oil and
gas companies consistently are being asked to provide new or
higher collateral requirements. It is important to talk with your
broker and determine how these requirements may be averted
altogether, reduced or met.
With all operators looking to streamline their operations and
do more with less, the current insurance market is an area that
can be a cost burden to an operator in a world that otherwise is
seeing many drilling and completion costs decreasing. An oil
and gas company and its broker should take time to strategize
renewals and think through all options available to the company
so that it is not surprised and hindered by a potentially significant
rate increase.

How have specific insurance lines/products
been impacted by events both inside and

outside the industry in 2020? For example, what are
the implications for rates and terms for company vehicle
insurance, workers' compensation, control of well, business liability, etc.? Do you envision any potential " trouble

their rates. An underwriter who previously would have the
ability to put up $25 million of excess limit only may be
willing to put up $10 million now. This is putting a strain on
oil and gas companies as they thoughtfully try to balance what
the right excess limit is against the cost of purchasing the coverage.
The market for directors and officers liability insurance has
hardened considerably, and seems to grow more and more unpredictable every day. Unfortunately, the industries hit hardest
by COVID-19-including energy, hospitality, retail, automotive,
entertainment and airlines-are also seeing the most punitive
rate increases.
Although not technically insurance, we would be remiss if
we did not mention the challenges we are encountering in the
bonds market. Bond underwriters are taking a harder look at
operators' financial statements and into their business models
for managing through the current lower-price environment. It is
not uncommon for bond underwriters to require collateral from
operators, in some instances as much as 100%. This is troublesome,
since high collateral requirements can further strain oil and gas
companies' balance sheets and impair their ability to fund
growth. We hope collateral requirements will begin to lessen as
commodity prices stabilize, but for now, this is an area where
operators should be on the lookout.

How are association-sponsored programs
helping smaller companies better manage

spots " in policy availability or cost emerging in 2021

their insurance programs? How would you summarize

for small- and mid-sized companies?

the benefits of association-sponsored insurance for

PLUMER: The biggest trouble spots we have seen in the industry lie within the property, auto, excess liability and executive
risks coverages. These lines of coverage have led the way with
regard to rate increases due to significant losses in recent years.
Property, driven mainly by insurance carriers' companywide
exposure to coastal, international or CAT properties and the
losses they have endured from recent earthquakes, hurricanes,
wildfires, etc., have caused property insurance in many industries
to increase. As respects the oil and gas industry, this has
translated to a trend of increasing rates to insure stock tanks,
compressors, pump units, facilities, etc.
Auto losses have made this line of coverage unprofitable
for underwriters for many years, and continue to do so. Many
factors led to this-increased technology on cars has made
them more expensive to fix, distracted driving/texting while
driving, the cost of health care if a party is injured, and the increase in auto accidents that are being litigated by plaintiffs'
attorneys have caused this line of coverage to continue to
increase in price.
Excess liability currently is being challenged by capacity
and by rate increases. Many carriers, due to the likelihood and
trend of claims settling for higher amounts than previously expected, are pulling back their excess capacity and increasing

independent oil and gas companies? Do you expect
any significant changes or additions in 2021 to the
types of policy coverages and products available
through these programs?
PLUMER: Association-sponsored programs historically
have been a great opportunity for smaller companies, and
even some midsized to larger companies, to manage their insurance programs. The pooling of insurance premium has allowed them a greater ability to share losses among a larger
premium base, hopefully resulting in a better cumulative loss
ratio for underwriters and lower pricing for oil and gas companies.
We think this opportunity still exists today. There are always
caveats to this, however. Assuming the makeup of the group is
sound and well-vetted and the underwriters backing the program
are seeing benefits and profitability, then association-sponsored
programs can be a great option to explore.
Many of these association-sponsored programs are likely to
be seeing some of the same industry challenges and rate increase
needs as would a company not sponsoring a program, but if
structured correctly and performing well, a program should
help to mitigate those rate increases.
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DECEMBER 2020 67

American Oil and Gas Reporter - December 2020

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