BUSINESS PROFILE New offshore insurance closes environmental liability gap for SME oil and gas contractors

Traditionally, offshore exploration and development (E+P) companies have shouldered the potential financial liability for when things go awry.

ACE Insurance logo

But events like the recent Deepwater Horizon rupture in a BP field in the Gulf of Mexico – which resulted in expensive clean-up and damage mitigation costs – have seen exploration and development companies coming under pressure from their own insurance suppliers to minimise and mitigate their own risk by passing this to their contractors.

Together with new legislation in the pipeline, this is putting increasing commercial pressure on E+P contractors to carry a heavier insurance liability.

And to meet this new demand, ACE insurance group has recently launched its new ACE Offshore product for oil and gas contractors shortly after the opening of its first office in Aberdeen, Scotland’s oil and gas capital. Emma Bartolo, UK & Ireland Environmental Risk Manager, ACE Insurance, explained:

 “Typically, a contractor may have been required to carry a £1 million excess on their insurance policy for environmental liability.

 “But the market is increasingly looking to increase this liability as the financial costs increase in both the light of Deepwater Horizon experience and also as a result of legislative pressure coming down the pipeline next year when the EU’s Environmental Liability Directive comes into force in Summer 2015.

 “This Directive will place a much greater statutory liability on contractors to clean-up and mitigate any environmental losses or damage – for example, where bird and/or marine life is adversely affected by a contractor’s acts or omissions to act.

 “There has been substantial growth in the North Sea oil and gas industry and we are seeing this being reflected in growth in our environmental insurance business. In fact, this was one of the most-often asked-for type of contractor insurance cover coming through from our brokers based in and around Aberdeen.

“Another major legal driver which is stimulating demand for ACE Offshore insurance is that the Environmental Liability Directive will now also extend to include both offshore and onshore waters. These are much more onerous requirements which are driving up demand for contractor environmental liability insurance.”

 ACE Offshore responds directly to contractors’ needs for pollution cover and offers environmental impairment liability insurance to this vital part of the offshore oil and gas industry. In addition to pollution cover, ACE Offshore can also provide contractors and suppliers with:

  • Accident & Health cover for post-traumatic stress disorder suffered following an accident offshore
  • Legal expertise, including a contract review with a professional from a leading offshore law firm, designed to guide clients through the complex area of oil and gas contract indemnity clauses, and
  • Multinational and multi-jurisdictional cover through ACE’s operations in 53 countries worldwide

 In Aberdeen, ACE branch manager Jim Rutherford is backed up by a team of 20 specialist under-writers based at ACE’s Glasgow office, which form ACE’s Scottish team. They are  part of a long-established ACE  UK group, which in turns is part of the ACE Group which operates in more than 50 countries worldwide and which in turn is listed on the New York stock exchange.

 David Robinson, Regional President, ACE UK & Ireland, said: “It is now a year since we established an operation in Aberdeen, the centre of the UK’s oil and gas industry. Our local branch manager Jim Rutherford and his team have been instrumental in gathering the direct feedback from brokers and customers and working with ACE colleagues locally and throughout our global network of expertise, to provide the right cover for this crucial sector of our economy.”

Emma Bartolo added: “ACE Offshore provides specialist environmental liability insurance. It plugs the ‘gaps’ in traditional property and generalist liability policies and can provide cover for;

    • First-party clean-up costs
    • Statutory clean-up costs
    • Bio-damage to aviatory and marine life – up to and including re-establish species to prevailing ‘baseline conditions’ prior to any pollution
    • Mitigation costs and costs from ‘loss of underground resources’ and
    • Loss of reputation

“The BP Deepwater Horizon incident marked a watershed for the oil and gas industry. It demonstrated the level of difficulty involved in dealing with subsea pollution and simultaneously accelerated the shift towards major exploration and production (E&P) companies passing responsibility for environmental liability down the supply chain to their contractors and sub-contractors. 

“This increasing contract complexity is proving challenging for oil and gas contractors, many of which are concentrated in the north of Scotland, in and around the Aberdeen area, many  of whom simply sign up to the new terms and conditions as a cost of doing business in order to make it onto the roster of the oil and gas majors.

 “We certainly believe ACE Offshore can do much to support a key industry which is the mainstay of the Scottish economy and a significant contributor to UK GDP. “

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed