‘Beleaguered’ energy market could prompt insurer exits

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The energy sector faces its “greatest challenge for 50 years” as the collapse in oil prices requires energy companies to cut costs and self-insure more, creating a lack of demand that could propel insurers out of the market, according to a recent report from Willis Towers Watson.

 “The phrase ‘the perfect storm’ is possibly the most over-used cliché in describing business landscapes, but in truth no other term really comes close to identifying conditions in the energy insurance markets as we move further into 2016,” Neil Smith, Willis Towers Watson’s global product leader for natural resources, wrote in the report. In fact, the report likened insurers’ struggle in the energy sector to Antarctic explorers of the past, fighting not just to attain the South Pole first, but merely to survive.

 The reduced demand and a surplus of capital have insurers competing heavily for the remaining business, according to the report, which is the first energy market review after Willis and Towers Watson merged last year. Since no insurers withdrew from the line of business last year, underwriters faced pressure to continue to deliver business. Premium income levels dropped from $3 billion in 2014 to $2.3 billion in 2015, a “significant drop,” according to the report.

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