The Summit

Beacon Hill Associates A publication of Beacon Hill Associates
What to Watch

What to Watch

Current Trends in the Energy Marketplace

Contractors working on an oil & gas pipeline.

Although there are conflicting opinions about the effects that the historic Clean Power Plan (CPP) will have on energy companies and the economy as a whole, there is no doubt that the implementation of this plan will require many companies involved in energy production and distribution to look at new methods and technologies to reduce their carbon emissions. As we often see in the insurance industry, new methods and technologies typically bring new avenues of risk, many of which are not uncovered until the new systems have been in operation (particularly in the case of gradual pollution events). Even with the best written standard operating procedures, mitigation plans, emergency response plans, or trained personnel, these often cannot stop a pollution event. One of the most recent examples of environmental professionals inadvertently causing a disaster is the example of Environmental Protection Agency (EPA) officials breaching a wall in a gold mine which eventually leaked 3 million gallons of pollution into two rivers in Colorado.

So what does this have to do with the state of the environmental insurance market as it relates to energy companies? It means that energy companies cannot leave their risk management approaches to chance. They have to be constantly monitored and reviewed (at least on an annual basis), to ensure that any new technologies or methods or claims examples that have recently been in the news are taken into account within their approach. One of the best ways to do this is to have frequent conversations with your broker or underwriter to see if there are any new coverage extensions that your peers are getting access to or if there are elements of their coverage that are being retracted as a result of recent events. This is particularly important in light of the underwriting challenges related to technologies or methods that do not have a proven track record and the fact that you may have different companies involved in the same type of alternative energy production with completely different technologies or methods. Keeping an open line of communication will allow risk managers of energy companies to plan for the coverage that you will be able to get and develop procedures/training/modifications for any coverage that you may not be able to obtain on renewal. 

Environmental regulations related to energy production and distribution continue to evolve and it is anticipated that there will be future regulatory activity. Some of the areas that continue to be under review in this area include:

  • - The impacts of energy production on water resources, such as hydraulic fracturing and its impact on drinking water resources, as well as stresses on water and groundwater supplies.
  • - Properly permitting energy exploration by ensuring accurate well siting, construction, and operation.
  • - Ensuring the safe disposal of waste from energy exploration/storage/distribution.
  • - Ensuring the safe release of wastewater and storm water discharges at all locations within the energy supply chain.
  • - Studying the impact of historical and current surface impoundments.
  • - Increasing transparency with respect to chemicals used in energy exploration.

Continual monitoring of the availability of new insurance products for the energy sector is important because we have found that many clients are not aware that, due to the competitive nature of today’s insurance market, they may be candidates for package policies. These policies may include Pollution coverage for the same premium that they are currently paying, but only getting some or minimal Sudden and Accidental Pollution coverage. Insurers continue to enhance their forms to offer energy companies broader coverage than they did a few years ago. The basic coverage that an energy insured should have in addition to liability coverage or the required WorkersCompensation is Pollution liability and equipment coverage. Carriers have created forms that often combine these coverages and offer enhancements such as Broad Form Pollution, Blanket Additional Insured coverage, Transportation Pollution Liability coverage, Non-owned Disposal Site coverage and Separate Defense Limits.

As carriers get more comfortable with a client’s operations, they will be in a position to offer coverages that they might not have in the past. Refineries, petrochemical operations, gas processing, and biofuels production, to name a few, were often very difficult to get coverage for. In addition, one of the results of the CPP is anticipation by utilities and environmental groups alike, that it will create new jobs in the clean energy sectors such as biomass, solar, wind, and hydroelectric, as well as create new opportunities for energy efficiency projects and new natural gas plants. With all of this new activity, there will certainly be opportunities for new technologies and methods to support those efforts. Insurance carriers are closely following the developments in the traditional and new energy arenas and looking for ways to offer products that will support them. Today, with many “A” rated carriers having developed departments that are specialized in the energy sector, this is becoming a much easier placement for every phase of energy production, from development and design to construction to implementation, to delivery of the final product.


Information for this article was obtained from the following sources: