Cigna Insurance Co. of Europe SA, London, has just insured Russian oil pipelines in the grid operated by Transneft, including some cover against pollution. Such policies are likely to become harder to find.
As Kevin Seakins, Cigna's manager of technical services, explained, "Onshore U.S. insurance is now a no-no; it has become an uncontrolled situation because of long-tail liability."
Cigna is one of many insurers hit in recent years by claims against clients for asbestosis contracted decades before. Similar backdated claims for effects of oil pollution are now a major fear of U.S. petroleum companies.
Seakins said Cigna's technical experts will make recommendations to operators about risk minimization, but will not cover operators' liability in many onshore projects, although it still does in offshore projects.
"Long-tail liability is an increasing concern," said Seakins. "It is moving to Europe now, and with passing of European Union's Environment Act in July, it is just a matter of time. With some energy clients this is a problem they expect insurers to solve for them."
Insurance myths
Seakins said one of the biggest myths about the insurance industry is the view of other industries that nothing is uninsurable and that anything can be covered at a price.
"This is where the differences between insurers come in," said Seakins. "Some write business on the basis of premiums. Others have a more reasoned approach and try to provide long-term security for clients.
"We want to see a professional approach to risk management before we will insure. We don't like to see clients using insurance as their sole means of risk management."
Mathieu Bell, Cigna's energy development manager, said the company chooses to insure projects with good risk management, rather than those that simply promise a large premium.
Cigna relies on its engineers to provide an accurate assessment of risk before it will insure. Sometimes the engineers will recommend changes to design or operation, for example, before the project can be covered.
Warning signs
Bell said two no-go areas for Cigna are clients that change insurance companies each year-making their decision only on premium price-and those that develop a reputation for not accepting recommendations.
Cigna argues that a low-premium policy may not provide full coverage, while a policy based on an engineering survey highlights a project's risks.
"Some risks look horrendous," said Bell, "so we say we will only cover them if certain changes are made. We have to make sure we are dealing with a company that will take advice in a constructive fashion."
But the classic myth, according to Seakins, is that the client must always check the small print thoroughly, because the insurer will always try not to pay out.
"Rather than insurance industry seeking to avoid claims," said Seakins, "often the client doesn't know what is covered. Sometimes clients think that if a stupid act causes an accident, for example, this means no payment. This is not necessarily the case."
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