Business-interruption (BI) losses in the oil-and-gas industry are likely to increase over the next decade unless greater attention is paid to how an event could affect supply chains that are more integrated, interdependent, and streamlined, said Marsh in a recent report.
The report, “Rethinking Business Interruption Risks in an Optimised Oil and Gas Industry”, assessed increased BI risks to an industry that has become more integrated against the backdrop of sustained lower oil prices.
Since 2014, sustained lower oil prices have been applying pressure to the oil-and-gas sector. State-sponsored feedstock subsidies are being swiftly eradicated and, at the same time, shareholders are demanding more efficient returns on capital. In this increasingly competitive environment, industry players are seeking new ways to save costs.
Consequently, integration and consolidation are two new ways for optimisation and increasing profitability in the industry. They will make contingent business interruption (CBI) exposures more challenging as redundancy is rationalised and operators become less resilient to respond and mitigate unplanned losses.
Risk exposures in energy and power operations are some of most challenging to identify, assess, and manage. These manufacturing complexities are continually evolving as the industry develops new ways to remain competitive, while adapting to mandatory regulatory changes.
Operator complexity is expected to grow as new optimisation work processes drive integrated value across entire supply chains, delivering new co-optimised production clusters that aim to maximise profitability.
The commercial changes between affiliates will drive the industry understanding of business interruption to the next level. It is therefore essential that the insurance industry adapts to these changes and delivers policies that accurately respond to these evolving business risk exposures.
The stress testing of policy wordings against possible loss scenarios is one method to ensure policies respond appropriately to new risks. Conducting BI reviews for industrial complexes benefits both risk managers and insurance markets. Independent experts can quantify operational resilience, critical nodes and supply chain interdependency. This promotes internal risk-management processes and helps in marketing risks to underwriters for insurance placement. M