In 2018 a power line touched nearby trees igniting a fire across Northern California. The now famous Camp Fire resulted in damages exceeding $7 billion. The power line at fault belonged to utility company Pacific Gas and Electric (PG&E), which now is responsible for paying $1 billion in damages and declaring bankruptcy – all caused by a single spark.
The risks associated with gas and energy are unlike any other industry. Encompassing oil refineries, coal mines, nuclear power plants, renewable energies, and more, this complex industry faces many emerging threats. Companies are turning to insurance for themselves and their contractors to mitigate those risks. However, managing the required additional policies, coverages, and endorsements presents its own challenge: failing to verify every contractor’s compliance could spark the next catastrophic loss.
Risk and Insurance cites seven critical risks impacting the energy industry:
- Climate change – companies increasingly must respond to demands for lower carbon emissions, reduced fossil fuel consumption, and better usage of renewable energies like wind and solar.
- A changing industry – energy production and consumption are changing. Driven by new capital investments and regulation, experts estimate the industry will operate much differently in 10 years.
- Cyber threats – the industry is undergoing a transformation from mechanical to digital. This makes it one of the most highly targeted industries for cyber attacks.
- Regulation – multiple state and federal agencies set regulations for nuclear, electric, gas, coal, oil, petroleum, and more. Companies must increasingly be vigilant to stay ahead of swiftly changing regulations.
- Tariffs and trade – the US energy sector relies heavily on global imports. Fluctuating prices and product availability could significantly impact infrastructure updates and overall production.
- Talent – KPMG estimates 50% of the energy workforce will reach retirement age within the next seven years. This talent gap also will create a significant knowledge gap, something concerning to insurers.
- Catastrophic events – CAT events increased in volume and severity over the last five years. These go beyond natural events to also include cyber attacks and terrorist activity. Estimates show some insurance rates have doubled over the last 10 years as a result. CAT events create more work for energy companies, but also introduce more risk.
Combatting the Risk
Insurance is one of the more proactive ways to protect against these emerging risks. Depending on a company’s line of work, following are coverages gas and energy companies increasingly require of their contractors to keep themselves and their projects protected.
General Liability Insurance – defends businesses against liabilities from lawsuits and similar claims due to perceived or actual negligence. Policies typically cover property damage, bodily injury, medical payments, defense costs, and personal and advertising injury.
Professional Errors and Omissions Coverage – protects companies, its workers, and other professionals against claims of inadequate work or negligent actions.
Umbrella Insurance – protects the policyholder’s current assets and future income beyond the standard limits of the primary policy.
Worker’s Compensation Insurance – provides wage replacement and medical benefits for employees who are injured in the course of employment.
Additional Insured Endorsement – extends a third-party’s insurance coverage to other named entities such as the hiring company.
Contractors Pollution Liability Insurance – covers companies in the event of bodily injury, property damage, and clean-up costs as a result of pollutants.
Equipment Floater Policies – covers loss of or damage to equipment that is moved across locations.
Commercial Property Insurance – provides protection for physical property assets to help pay for structural repairs and losses.
Maritime and Longshoreman Insurance – covers lawsuits, medical expenses, and lost wages for employees injured during the course of work in connection to the Longshoreman and Harbor Worker’s Compensation Act.
Transport and Cargo Legal Liability – covers physical loss or damage to property of others while being transported either internationally or domestically.
Riggers Legal Liability – provides coverage for a contractor’s liability arising out of the moving of property or equipment that belongs to another party.
Cyber Risk Insurance – covers losses from network outages, security breaches, fraud, and data destruction.
Business Auto Insurance – typically provides collision coverage for all vehicles in an accident as well as medical coverage.
Ensuring the Insurance
Companies recognizing the emerging risks are updating their contracts to require additional insurance coverages like those listed above. This marks only the first step for better protection. Companies then must verify the multiple coverages across all its contractors, which could be in the hundreds or thousands. Manually validating coverages is unsustainable but missing a compliance check could be a billion-dollar mistake. The solution? A best-in-class Certificate of Insurance (COI) tracking system called myCOI. Our cloud-based platform tracks insurance compliance, automates renewal updates, and provides proactive risk assessments. Most importantly, the system is backed by a team of insurance experts prepared to ensure each coverage across all contractors meets requirements that keep your company safe. Stop risk before it sparks a loss by scheduling a demo with myCOI.