Global energy and power insurance: A worldwide review
The global energy and power insurance market is likely to be worth at least USD 24.59 billion in gross written premiums by 2018 and could rise to USD 26.15 billion in the event of a sharp recovery in the oil price.
According to new research published by Finaccord, energy and power insurance premiums worldwide, including business handled by captive and mutual insurers, amounted to around USD 23.56 billion in 2014 having increased from around USD 21.48 billion in 2010, which was equivalent to a compound annual growth rate in nominal terms of 2.3%. In 2014, this total market segmented between around USD 14.16 billion from energy insurance premiums and around USD 9.40 billion from power insurance premiums, with the US by far the largest market at around USD 8.38 billion followed by Canada at USD 1.77 billion and China and USD 1.45 billion. With regards to energy insurance premiums, in particular, these broke down between around USD 7.15 billion from upstream insurance, around USD 2.17 billion from midstream insurance and around USD 4.84 billion from downstream insurance.
Commented Christian von Celsing, Consultant at Finaccord: “At the global level, upstream energy insurance premiums have been growing at twice the rate of midstream premiums while downstream premiums actually declined between 2010 and 2014. The more rapid increase in the value of the upstream segment can be attributed to rising exploration and production worldwide. On the other hand, it is generally the case that insurance pricing for downstream assets has been subject to the most pressure.”
As for power insurance premiums, these broke down in 2014 between around USD 7.28 billion from conventional power insurance and around USD 2.13 billion from renewable and other power insurance, and a key global trend has been the rapid growth of renewable and other power insurance premiums given that these had a worldwide value of around USD 1.55 billion in 2010. “Premiums deriving from insurance for solar and wind power have been rising especially rapidly”, continued Christian von Celsing. “This can be expected to continue in future albeit the policies of national governments in this field are often inconsistent or uncertain.”
Looking ahead to 2018, Finaccord forecasts that energy and power insurance premiums worldwide will increase to a value of around USD 24.59 billion under a low oil price scenario (segmenting between around USD 14.14 billion in energy insurance premiums and around USD 10.45 billion in power insurance premiums) and to around USD 26.15 billion in the event of a high oil price scenario (segmenting between around USD 15.70 billion in energy insurance premiums and the same value for power insurance premiums as in the low oil price scenario). The difference here is attributable mainly to the upstream energy (oil and gas) segment, which fluctuates between representing 28% and 32% of overall energy and power insurance premiums in the low and high oil price scenarios, respectively.
Concluded Christian von Celsing: “While the future price of oil has little impact on the future value of power insurance, it would influence the outlook for energy insurance, especially upstream insurance. Furthermore, while far from an exhaustive list, other key trends impacting the outlook for energy and power insurance worldwide include on one hand the likely or possible growth of hydraulic fracturing (fracking), deepwater drilling, Arctic development, solar power and wind power, all of which are conducive to growth and innovation, and on the other, persistent underwriting over-capacity, which depresses premiums, especially in mature markets.”
