Energy State of the Market

After a year of slashed demand in 2020, global oil demand surged in 2021 as the world began to recover from the coronavirus pandemic. In 2022, energy demand and commodity prices are still up, indicating that the energy industry is strong (source 3). Refineries are operating at approximately 95% capacity, and many companies would like to expand operations conservatively. But, like other industries all across the country, energy companies are struggling to find and hire qualified employees to fill positions. They’re also grappling with ongoing supply chain problems that make it difficult to obtain materials and purchase or repair vital equipment. As the insurance marketplace continues to contract, prices are rising for several product lines.

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Transcript

Dan Wentz: 0:22

What does the energy market look like in 2022? Let's get a pulse on the market from CRC group specialists who work in energy all day, every day. First we'll talk with Richard Martin, the president of JH blades, the CRC Group company, plays focuses on upstream energy, cargo and marine insurance. Then we'll talk with Keith Richardson and Rebecca Kaji who work in the CRC group Houston office to understand casualty for energy contractors, including one of our favorite subjects, auto. The energy state of the market is next right here. Welcome to the placing you first podcast from CRC group. I'm your host, Dan Wentz. And this podcast features news and insights from CRC group's vast knowledge base of 4300 plus associates who right in excess of $23.5 billion of premium annually, and we're giving you insider access to what's happening in our company and the types of insurance we place. This is the placing you first podcast, we're joined by Richard Martin, who is the president of JH blades. Richard, can you give us an idea of the types of business that James Blaze works in?

Richard Martin: 1:26

So blades focuses 100%, on what we call upstream energy business, now upstream is effectively drilling production associated casualty with that type of exposure.

Dan Wentz: 1:40

So this article was about the state of the market for energy. What are the big issues and big factors we should consider when talking about this topic.

Richard Martin: 1:51

So the there are four classes of business we are typically involved in control of well and physical offshore physical damage are basically good for the buyer. Right now, we're not seeing much of a rate increase in either of those lines of business flat to maybe 5% increase on the comptroller well, those increases can be offset by increased estimated drilling activity. And in the current market, and what's going on in the world, right now, of course, there's a huge demand for oil and gas. So most of our clients are predicting higher activity for the next 12 months. So they're probably going to see flat flat rates for controller when physical damage. Now that is entirely the opposite of control as a sorry, of casualty or bi and contingent bi. Focusing on the BI and contingent bi first of all, the market has experienced several large losses in the past 12 months. And there was a lot of focus on the scheduling and the rates for BI and CBI. So clients that do buy that coverage can expect to see pretty substantial increases, and restricted conditions for those lines of business. The casualty market is the hardest market we've got right now, for oil lease operators, we're seeing pretty significant increases 10% ish on the general liability, but on the access layers, were seeing increases of up to 50, maybe even more than that 50%.

Dan Wentz: 3:28

So Richard, what's causing the increases the big increases.

Richard Martin: 3:32

So the casualty market basically has seen Runaway Jury awards, particularly in Texas for bodily injury in the past 12 months. We've also seen auto losses penetrating into the access layer, which is relatively new. We've seen auto losses in excess of 25 million this year. We've also we are aware of an auto loss, which is as high as 104 million, which we're not involved in. But clearly that those are market losses, which are going to affect everybody, regardless whether you did or did not write them, because everybody's reinsurance is going to end up in the same places. The other thing we're noticing for all these operators is insufficient contractual requirements in their master service agreements. Basically operators haven't reviewed their contracts for years. And maybe in the past a GL and a 5 million contractual requirement from a contractor was good enough. Today, I think it would need to be closer to 20 million in order to protect the operator sufficiently on a knock for KNOCK basis.

Dan Wentz: 4:34

Okay, so what should agents know about the state of the market for energy and the current market conditions?

Richard Martin: 4:41

So on the on the casualty side, focusing on that, there are not that many specialized casualty markets for the upstream energy business. Obviously, in addition to blades, we have a couple of competitors on the domestic side. And then of course, there's Lloyds of London. But with so few markets, I think it's very important for retailers to get out in front of their clients very early and explain to them what is happening and get them prepared for what are significant increases. Now, the way to minimize those increases is see if they are prepared to address their master service agreements. Now rather than wait for us to suggest they do it in which case They probably wouldn't see a rate benefit for that for another 12 months, we've seen some drastic steps taken by all these operators where they've actually been selling off their auto fleet and leasing instead of owning in order to reduce their auto exposure. On other lines of business, see, particularly CBI contingent business interruption. There's a definite move from all markets to only provide that for sheduled locations. That's relatively new to some people, they've just had a blanket coverage in the past, going forward, they're going to have to identify what locations they require coverage for, and also held their contingency plans for getting around choke points within the infrastructure.

Dan Wentz: 6:10

Thanks a lot, Richard. And now we'll check in with Rebecca cache and Keith Richardson in the CRC group Houston office to talk more about the energy state of the market. How is the energy market doing right now? Has it recovered from the pandemic? Has it changed at all throughout this very turbulent three year period that we've had?

Keith Richardson: 6:30

Yeah, I would say that there's a lot of growth now. People are getting back to work. I mean, I think they dealt with a lot of staffing issues. You know, obviously, through the pandemic, and everything that's going on, and the economy, I think plays a big effect in it. But yeah, it's definitely evolving more than it was. So last year.

Rebecca Khajeh: 6:48

I think the fact that our, from our contractors that their revenue has gone up, payrolls gone out, it's helped us get better rates on our renewals. When sales were down, exposures were down, there was a loss here or there, the rates were going up, it was hard to fill out the limits on some of our contractors.

Dan Wentz: 7:08

So what do you guys see in on the contractor side of things? Rebecca, you want to start with this one?

Rebecca Khajeh: 7:13

Sure. Um, you know, I kind of mentioned that on the last question, I'm seeing heavy growth, lots of lots of growth, which is causing us to, if we don't get rate relief, and I'm, I'm talking, Keith, you can correct me here if I'm wrong, but I've got contractors that are going up 20% 30 40% in revenue, and my agents are expecting a double digit rate decrease. And believe it or not, as long as there haven't been claims, I've been able to get that sometimes from the incumbents, but most times I've had to move the account, which we don't like to do, but we have to do it or our competition. Well,

Keith Richardson: 7:54

yeah, I think the competition now is more so than ever. And, like I said earlier, I think there's some new capacity players that are coming into the mix, some new mgas, you know, underwriters, that left previous carriers starting new operations that are making it even more competitive than just the growth itself. I think that's where a lot of some of the fluctuation in the market is coming from is also the competition within the marketplace. On the service contractor side.

Dan Wentz: 8:22

And you talked about competition, he talks about new players is switching to a new carrier, the right play right now,

Keith Richardson: 8:28

we always try and not encourage our folks to keep moving around. I mean, because energy space is, you know, a niche space. So I mean, a lot of times when you send out an insurance business to the marketplace, you do it year after year, and they find out that you've shopped around, and you've moved from carrier to carrier to carrier after a year, it kind of turns the nose away from some of these accounts for some of these underwriters because they don't feel the loyalty. And I think that goes across the board as a whole is what we do. But definitely in our space as well.

Rebecca Khajeh: 9:00

We're in a tough position, or retailers are as well as us, because during the pandemic and the rate increases and having such a hard time getting, you know, excess capacity. Our agents are doing everything in anything they can to stay in the insurance good graces. So sometimes it does mean that we have to move the account from a carrier. And again, like he said, it's not something we want to do. But we have to do what we're instructed to do by our retailers. And sometimes that unfortunately, that means moving the account. And it depends on the situation. But sometimes it is the right place to move the account to a different carrier.

Dan Wentz: 9:43

What about can you guys talk about auto?

Keith Richardson: 9:46

Auto is always a topic of discussion. I mean, claims are going more and more vertical. I do we just had a topic of discussion where, you know, a lot of these claims have been stagnant because of the pandemic are now finally coming to fruition being paid out. And the verdicts are just going vertical. I mean, I think there was one in West Texas not too long ago, they just settled for like $104 million, or something like that means something outrageous. So we're having to tell these clients that you know, have always carried five to 10 million to beat their contracts, hey, you're grossly under insured and they don't really understand that. They're like, Well, I've been carrying this for years. Well, still, verdicts are increasing costs. of insurances increasing. So you know, it's very volatile when it comes to auto. And then the other thing is, I mean, we had a recent carrier, Mount Holly who's stepped out of the space to anything with a GL and supported excess within the lead 5 million, they will not schedule any auto at all. And even on a 5x, five unsupported, it has to be 20 units or less. So in our space in the service contractor world that's really, you know, disrupted the marketplace, and I think created a lot opportunities for some of our competing carriers in that space. But Auto is always a big hit for us. And I think we've gotten creative and done a lot of excess auto towers on a separate basis, where that marketplace has more of an appetite, just for the auto piece. And then we can keep the deal and pollution and professional with, you know, the general energy markets.

Rebecca Khajeh: 11:13

And we're pushing our retailers to get as much information as possible, what are their driver guidelines? What are the safety guidelines? What additional steps have they taken? Do they have, you know, different like safety companies, they work with all of that information, we're asking for up front with any claim that's had in any account that's had auto claims, or has a large fleet, if we can address any issues up front, when we're marketing, it helps us and it helps us sell the rest. So I don't think auto issues are going away anytime soon. That that is a huge issue with our markets right now.

Dan Wentz: 11:52

It seems to only get worse to like we've been talking about auto for years now on this podcast, and it just every time we talk about it's like worse than it was before there's gotta be an end in sight somewhere. You think, yeah, I made some kind of litigation or something that would help out with this,

Rebecca Khajeh: 12:07

they have an increased, you know, it's still a million dollar limit. And it's been that way for how many years now? I mean, million dollars isn't go as long as it as it did before. And, you know, the majority of our auto is not aggregated. So I mean, they could pay multiples, you know, auto claims and one policy urge. It's tough. I think, I wouldn't be surprised if that if a one mil CSL becomes mandatory 2 million, you know, going forward or something, something's going to have to change, because it's just getting worse, nothing is improving?

Keith Richardson: 12:42

Well, I think, also to add to that data, I think there's, you know, there's conversations of change in tort liability in Texas, where they are actually going to, you know, make more responsibility on some of the drivers themselves on a civil basis versus the sole negligence of the company, because a lot of these companies are getting taken down by one idiot that ended up, you know, getting drunk during work and drove his truck through a McDonald's or whatever it may be. I mean, we hear about the craziest claims, but they are trying to, I think, correct that from my understanding, and don't quote me on that, but these are rumors I've been hearing is changing that. So they can go after the driver, more than the actual company itself to help offset some of that, because they are being so penalized, even if they have all the proper protocols in place, hiring practices, safety, training, all of that. So I think hopefully, maybe some of that will come to fruition. But yeah, I think autos always going to be a problem. And no matter what process you have in place, or, you know, telematics, there's only so much you can control.

Dan Wentz: 13:47

Alright, and the final question I always ask is, what should agents know? And how can they help their insurance,

Rebecca Khajeh: 13:54

some of the agents that we work with, they offer risk management, help with the insured, you know, how to tackle their safety manual, you know, what, what training they can provide, we reach out to our carriers to that are potential partners for that particular insured, and we bring them and we just had a conference call with one of our large clients, and the carrier stepped up and offered tons of different programs that they offer, and just safety risks, practices, and how to mitigate a lot of steps, they can take just different solutions on how to mitigate future losses.

Keith Richardson: 14:35

I mean, a lot of it is just being able to get us more information because the more information we have, the more story we can sell. I mean, that's probably general for everybody in this space. But the underwriting process is gotten a lot more extensive as far as information required. So, you know, working with us, we obviously know this space really well. We're very dominant in this space. And you know, we have a lot of the upfront questions and information already being asked versus coming back to you after the fact and trying to get it done in the marketplace and then saying, Oh, I'm gonna have a coach here in a couple of weeks and then a couple of weeks go by and add these 31 questions. Well, you know, working with us we can can eliminate that and use our relationships in the marketplace to kind of get a competitive advantage on I would say that our relationships with our underwriters in this space are very strong and it's a huge competitive advantage.

Dan Wentz: 15:30

Thank you guys so much for joining us. We really do appreciate it and for all your insight on the energy market,

Keith Richardson: 15:35

definitely we appreciate it.

Rebecca Khajeh: 15:36

Thanks for including us, Dan.