Archive for Energy
Alternative Energy Plants
A number of alternative energy sources to traditional oil, gas, and coal industries are being explored. Examples include wind, hydropower, waste-to-energy, ethanol, geothermal, solar, methane gas recovery, and cogeneration/IPP facilities. Investor willingness to pursue such a wide variety of fuels signals a dynamic and growing energy industry. Some large insurers have arrangements that coordinate property, casualty, and non standard coverages and also provide technical services to meet the needs of power producers.
Biofuel distributors provide biofuel blended to the specification of its customer base. They are similar to other fuel distributors with the same fire and explosion concerns. Most biofuels are distributed through rail or motor carrier and not through pipelines which is a major exposure.
The most commonly recognized biofuel is ethanol but it is not the only biofuel. A biofuel is any fuel that is made using plant-based/renewable material. Many of the same underwriting concerns related to any type of fuel manufacturing are present with biofuels except that the plants tend to be on a smaller scale. A major concern has been the economic viability of the biofuel due to the availability of lower-priced natural gas and crude oil.
Chemical distributors require significant liability insurance limits in order to protect them from environmental impairment lawsuits related to the potential release of chemicals that they store and distribute to others. They have a significant workers compensation exposure because of the toxic properties of many of the chemicals plus the catastrophic explosive exposure of certain chemicals. Property and business income exposures are also challenging. The auto exposure has standard motor carrier concerns with the added environmental impairment exposure resulting from overturn or collision.
Chemical manufacturers require significant liability insurance limits to protect them from lawsuits related to the hazardous nature of some of their products. In addition, there are significant environmental impairment exposures. Property and business income exposures are also challenging because of the caustic nature of various base elements and the explosive potential when they are combined. The workers compensation exposure can be very high and require extensive loss prevention activities and programs. Auto and Inland marine exposures vary based on the way the chemical and base elements are transported.
Coal Mining Operations
Coal mining presents different exposures than the exposures in iron, lead, copper, nickel, precious metals, and semiprecious metals mining. Surface mining is safer than underground mining from a workers compensation standpoint but presents more significant liability and environmental impairment exposures and issues. Both underground and surface mining present significant equipment exposures but the equipment used and the hazards involved are very different. Workers compensation in any mining operation is a significant loss exposure.
Coal Trucks Physical Damage
This class of commercial automobile business is especially difficult to place because these trucks are large, very heavy, and travel on narrow, unimproved, and winding roads in difficult terrain.
Energy, Oil & Gas
Geothermal Energy Projects
Current energy issues have stimulated concentrated searches for viable energy alternatives. Geothermal energy is one that has many direct and indirect applications. Large scale projects involve extracting water or steam from the earth’s core. This coverage protects the owners of or investors in geothermal wells from loss of the resource itself. It does not protect the party that uses the resource. Losses occur if the source dries up or fails to produce for an agreed-on operational period. Limits are tailored to each applicant’s needs.
High Technology Exposures
These are cutting edge industries, including businesses that develop new sources of and uses for energy, robotics, and outer space travel. Large insurance brokers, insurers, and reinsurers have established special departments to handle significant technology exposures.
Loggers Broad Form Property Damage Liability
This is basically a fire legal liability coverage form. It protects the “care, custody, and control” exposure of logging contractors that log on land owned by others or on land that has standing timber that belongs to others. It pays all amounts the insured logger is legally obligated to pay because of physical damage to or destruction of tangible property of others, including loss of use that arises from an occurrence directly related to logging. It also covers fire-fighting expenses incurred by others for which the insured is legally responsible because of a fire caused by the insured’s negligence or the negligence of its employees. This coverage is available in areas where logging operations are important to the economy.
There are certain parts of the country where logging and lumbering operations are important to the economy, and agents and brokers must find and maintain markets that understand and write logging and lumbering risks. Placing coverage with specialty carriers is necessary due to the special equipment and vehicles used in logging operations and to transport the logs to the mill for sawing and shaping into lumber. In addition to the liability hazards, workers compensation coverage is also often difficult to place and must be handled by carriers that are familiar with this class of business.
Mining Operations and Equipment
Mining risks have always been considered a specialty class of business because of the liability and workers compensation exposures and hazards as well as physical damage to elaborate and expensive equipment used to mine coal or metal ores. Workers compensation for any mining operation is extremely hazardous because the workers are exposed to occupational diseases such as black lung in addition to the potential for cave-ins and underground explosions. Large and high-valued special-purpose mining equipment requires special named perils or “”all risk”” inland marine coverage forms to insure against both above ground and below ground physical damage losses.
Natural Gas Utilities
The two types of natural gas utilities are public owned and investor owned. Both distribute natural gas to residential and commercial consumers. Each faces a variety of unique exposures. Some natural gas systems operate peak saving facilities that store natural gas to be used to supplement the normal amount of gas delivered to customers during peak-use periods. Others have propane delivery operations to customers not yet connected to gas lines. These and other operations require aggressive loss control and safety management programs. The potential for underground gas pipes rupturing is a major exposure and regular line maintenance is vital. Commercial property, general liability, automobile, directors and officers liability, inland marine, and umbrella liability coverages are needed.
Offshore Oil Drilling and Service Risks
Property coverage for this class of business is usually written on a named or specified perils basis. There are several different types of offshore rigs, including mobile offshore drilling units and ship-shape floaters, and rigs built on ship hulls. Rigs that are anchored into the seabed and rigs that have submersible oil drilling apparatus pose problems for property insurers. Offshore drilling operations also have significant liability and workers compensation exposures. Workers compensation requires United States Longshore and Harbor Workers Act and Jones Act coverage and must have sufficiently high limits to protect the owners, operators, and drilling contractors and their employees. The threat of water pollution from offshore oil drilling operations adds to an already difficult and complicated insurance coverage arrangement.
Oil and Gas Deficiency Insurance: Guaranteed Performance
Developers and investors whose oil and gas fields do not produce as expected can still get a return on their investments with oil and gas deficiency insurance. If the field’s actual output falls short of engineering report projections, the financial institutions, independent oil producers, individuals, or partnerships are indemnified for the loss. Fields with proven reserves that currently yield through at least three producing wells can also qualify for this insurance. Operators must provide equipment needed for the operation and maintain it in good condition. There is no coverage for inadequate cash flow due to price fluctuations, excessive supply, rising petro-loan interest rates, profit or loss from tax risk, environmental regulations that impede production, operating expenses, hazards, and other uninsurable risks.
Oil Drilling Equipment
Property coverage written on special “”all risk”” as well as named perils coverage forms protect the owner, lessee, or lessor of land-based drilling rigs, portable well service equipment, exploration vehicles, and work-over rigs for loss or damage to this equipment. Ocean marine coverage forms and policies insure offshore drilling rigs, barges, and service craft.
Oil Drilling Rigs and Well Servicing Equipment
Oil drilling rigs and other equipment necessary to service oil wells present substantial values.
Oil Landmen and Lease Brokers E&O
This coverage is tailored to meet the specific needs of oil landmen. They provide title search and oil lease purchasing services on behalf of clients who are beginning to develop oil properties. This errors and omissions coverage insures the landman’s errors and omissions.
Oil Lease Property (Oil Field Equipment)
Property coverage is available on special “”all risk”â€ type or named perils coverage forms that insure wellhead equipment, oil-gas separators, oil tanks, gas compressors, treating plants, pump stations, gasoline-sulfur recovery plants, and similar oil field service equipment that are commonly used at oil lease sites.
Oil Well Liability
This commercial general liability coverage form insures oil well drilling operators, contractors, pipeline owners, and fabricators for bodily injury and property damage that arise from their ownership, operation, or use of oil wells.
Operators Extra Expense: Oil and Gas
Oil and gas producers have increased their exploration, drilling, and production activities. The risk/reward ratio of these drilling efforts is matched by concerns about environmental accidents and damage to equipment. Operator’s extra expense insurance is designed to cover the cost of well control, seepage, and pollution, removing and nullifying, cleanup and containment, and re-drilling expenses as a result of a blowout. Coverage can be endorsed to cover underground blowouts, “unlimited” re-drilling, and offshore operations.
Coverage for large petrochemical operations is usually handled by specialists who are familiar with the engineering and management of large concentrations of specialized equipment used to manufacture chemicals derived from petroleum or natural gas. Loss exposures such as fire, explosion, earthquake, tornado, or hurricane must be underwritten carefully because they represent catastrophic exposures because of the values exposed and the volatility of the manufacturing process and the products manufactured. Property, commercial general liability, workers compensation, and pollution liability are some of the exposures covered. Excess of loss plans, high deductibles, and layered coverage are commonly used with this class of business. A number of pools and captive companies are markets for higher excess coverages.
Chemical, gas, and petroleum companies that manufacture or extract their products from beneath the earth’s surface invest millions of dollars to construct both overhead and underground pipelines to transport their products from one point to another. Pipelines are exposed to fire, flood, soil erosion, landslide, earthquake, rupture, collision, and explosion. Pipelines beneath bodies of water may also be subject to damage from passing vessels. Insurance coverage is usually written on an “all risks” basis for buildings, the pipelines themselves, meters, machinery, pumping stations, and tanks. Only insurance companies that have high property capacity write pipeline risks.
Power Distribution: Electric Utilities
Electricity is not useful unless it is distributed. Electric cooperatives, public utility divisions, municipalities, and co-generation systems are examples of distributors. Their coverage needs include at least property, crime, equipment breakdown, general liability, auto liability and physical damage, D&O, workers compensation, and umbrella liability.
Solar Energy Products and Installers
Businesses that manufacture or install solar energy products that are used to heat air or water or to generate electricity for dwellings, swimming pools, or commercial buildings need commercial general liability, products and/or completed operations liability, and/or bailees coverage.
Heating by solar energy continues to grow as an alternative source of energy. Some individuals construct their own solar heating systems, relying in part or totally on the sun for energy to heat their homes, while others purchase commercially manufactured systems. Some even sell excess energy back to their local utility provider. Hazards include the breakdown of combustible materials near collectors, susceptibility to wind, rock, or hail damage, and theft or vandalism losses that involve copper and glass collector systems. Insurers require inspections of homes that use such heating systems.
Wind farms are collections of wind turbines used to supply energy to a single business or to provide energy to the power grid. The property exposure is significant because of the cost of each turbine. The commercial general liability exposure depends on the various types of contractual relationships. Workers compensation exposures are significant because employees work at great heights and the difficulty of gaining access to certain parts of the turbine.