Energy risk being transformed by climate change response, says WTW

Climate change and the resulting energy transition continues to transform the energy industry risk landscape, and remains the dominant issue facing the sector, according to Willis Towers Watson (WTW) in its just-released annual Energy Market Review.

The report shows how the global energy system is currently being overhauled, with the threat of flows of fossil fuels from fields around the world, through pipelines and tankers to refineries near to consuming markets, disappearing or changing radically to more renewable energies such as wind, wave and solar power.

WTW said that conditions in almost every sector in Energy insurance continued to harden

Total theoretical capacity increased for both Upstream and Downstream Property, and now stands at $9.2bn and $6.2bn.

However, WTW said that management pressures continued to prevent much of this capacity from being deployed in practice. Therefore realistic levels now stood at $7.0bn and $4.0bn respectively.

For Energy Liability, overall theoretical levels remained static at around $3.0bn, but realistically stand at $1.0bn for most Energy business, depending on region and risk profile.

WTW said that both the Upstream and Downstream Property markets were likely to prove profitable for 2020, whereas the Liability Energy portfolio continued to run at an overall loss.

WTW said that a two-tier market had developed for Energy Property business, with sought-after business featuring a good spread of risk and premium income attracting more moderate rate rises than the remainder of the portfolio. Liability Energy rating increases continued to depend heavily on the amount of programme limit required.

Graham Knight, Head of Global Natural Resources at Willis Towers Watson, said that “in the past 12 months we have seen some quite extraordinary developments around oil price, demand destruction and an even sharper focus on environmental, social and governance issues and so there is no denying there are increasingly wider challenges facing the energy industry. However, it is the issue of climate risk that continues to dominate the sector and we are increasingly seeing an acceleration of the energy transition that will have a significant impact on the future shape of the industry. In short, today’s energy businesses are needing to consider how they establish robust transition plans to ensure a sustainable future.”