Oil & Gas Product News Logo

Partnership trumps geography in the energy sector

Michael Marino.
Michael Marino.

Canada has it all when it comes to the energy sector. We have the natural resources, the depth of experience, drilling technologies and the human capital to get virtually any job done. Along the way the domestic insurance industry has grown with this sector and can handle the clients’ most sophisticated needs.

In fact, we embrace the sector for its dynamism, innovation and personality. There is no room for a ‘cookie-cutter’ approach as each client is unique and challenges us to bring our expertise and critical thinking to the table.
My 20 years of experience in the energy sector have also shown that the client/broker/insurer relationship is the most collegial in this business. The business is inherently costly and the stakes are simply too high to be working in a silo. When you consider an accidental release of flammable liquids or gases and the potential harm to people, the environment and the business, it is sobering. The sector may not have a high frequency of claims, but when a loss does occur, it’s typically severe and costly – in the millions. Some of the facilities earn in excess of $10 million per day in revenue. If a plant were to be closed for a year, that translates into a $3.6 billion loss to the company.

This all underlines the need for collaboration and trust, and frankly speaking, the more professionals involved, the better. There is a high level of expertise that serves this industry on the broker and insurer side. Often insurers have engineers on staff who have ‘crossed over’ from the energy sector. It is a formula for success and makes Canada a world-class leader in serving the sector.

The energy sector is also distinguished by the remoteness of the projects – typically they are in places that you and I have never heard of and maybe can’t even pronounce. Today places such as Fort McMurray seem practically urban when you consider installations and explorations in the Northern Arctic, Mauritania and Yonghungdo.

The fact is, the energy sector is casting its line further and further afield in order to develop resources. And yes, the cost of a claim can go up significantly in a remote location. The terrain poses difficulty in getting the right people and equipment to the site to remedy the accident. Having a plan in place that already addresses a ‘worst case scenario’ is really the cornerstone of a quality risk management plan.

The energy sector was built on confidence, risk taking and an unrelenting ‘can do’ attitude. Insurance was built on being cautious, prudent and conservative in its approach to underwriting risk. A winning partnership rests on the two sides tempering each other and moving forward in a responsible way.

There is the stubborn perception that the remoteness of a site is a major obstacle especially when it comes to responding to an incident, equipment breakdown or remediation. Here’s where knowledge and extensive pre-planning is essential. An Arctic location presupposes that the brutal winter conditions make site accessibility problematic. In actuality, the winter is better so that ice roads can be built to bring in equipment. The summer months require wooden mats to cover the entire road surface making for a slower and costlier access.

The Canadian no-nonsense approach to seasonality and the cold has made us pragmatic in dealing with Mother Nature. We know bad weather, so it’s no surprise and with proper planning, there are viable solutions. I still marvel at some of the misconceptions of Canada and our ‘tundra-like’ status with many industry colleagues around the world.

Wherever the location, best practices can ensure the efficient handling of any incident. More of a concern for insurers is the ratio of contractors to employees. Data has proven that loss frequency increases when the proportion of contractors is higher. A more conservative contractor will not assume too much liability in a contract, while an upstart or aggressive contractor will cross their fingers that all will go well and will accept a more onerous liability transfer. I recall a gas installation built in northern Mexico that was impressive upon opening with a fire protection system that was state-of-the-art. The maintenance contract was outsourced locally and one year later, the system failed as the contractor did not know how to service, maintain or test it.

The media, public and regulatory attention to this sector is trending upward. Pipeline breaks are common and minor ones attracted little, if any, attention in the past. That’s no longer the case and the industry is under the glare of the spotlight. As a partner serving this sector, we relish any opportunity to ‘up the game’ when it comes to risk management. We also see that clients are taking a 360-degree view of risk that encompasses a project’s entire life cycle – from planning to reclamation, even before any ground is broken.

The industry must assure all stakeholders that projects are being developed in the most prudent way. Now more than ever, regulatory agencies such as Alberta’s Energy Resources Conservation Board are playing a pivotal role and can be either be a partner in a project or an adversary. My message to clients is you must exceed any regulatory requirements. These are only guidelines. Our job is to educate and inform clients that to keep the disruption to a minimum and get back to business after an incident, your plan must be heavy on risk control and transparency.

In the event of a spill or incident, the regulatory agencies come on-site to investigate the cause and to ensure that the operation is safe before allowing it to resume operations. A solid working relationship with the agency makes good business sense if they are familiar with your operation and the risk management program in place.

Again, it comes down to relationships and transparency in all that you do.

We expect our clients to have a vested interest in the risk. It offers us a much better comfort level and puts risk management at the forefront for all parties. If clients assume higher retentions, they’re in it for the first dollar. It demonstrates confidence in the operation and we are willing to put up capacity based on that. Conversely, if a client is hesitant and seeks lower retentions, they are relaying an unsettling message – they do not want to participate in the risk. From an insurer’s standpoint, we want to know the client. We do not want to be a capacity-provider. That will not serve anyone well at the end of the day.

The energy sector has matured in Canada to a place where wisdom is prevailing. While still competitive, there are collective efforts that share research and new technologies, all in the name of finding the right technology with the least amount of impact on the environment. The insurance and broking communities are doing their part as well – we are all committed to better serving the sector, sharing the best practices and forging strong partnerships.