Energy insurance market should rethink cyber clauses: Marsh

Concern is mounting among global energy companies about continuing uncertainty surrounding the application of cyber exclusion clauses in policy wordings by insurers, notes Marsh’s latest Energy Market Monitor.

Inclusion of so-called “CL380 clauses” – which are currently imposed across a broad range of energy insurance policies – mean insurers may deny energy firms’ claims for physical loss or damage stemming from cyber-related incidents, regardless of whether the motivation is accidental or malicious, notes a statement released Wednesday by Marsh, a global leader in insurance broking and risk management.

The insurance industry’s stance on CL380 clauses remains largely untested, which Andrew George, chairman of Marsh’s Global Energy Practice, notes in the statement is a testament to the global energy sector’s aggressive approach to risk management.

“However, the current situation is clearly unsustainable. A cyber-related incident could potentially have catastrophic consequences,” George cautions. “Insurers must deliver innovative products that offer coverage which responds to the changing risk profile of the energy industry, not only to stay relevant, but to help their clients continue to be successful,” he adds.

With regard to the terrorism market, Marsh reports that “country rates are still holding a strong discipline; however, the margins are being squeezed by the leaders of the past who have emerged as new markets with new capacity.”

Beyond mounting concerns around the growing perceived risk of cyber terrorism, the report notes, the key threats today relate to changes in the geopolitical environment (and the speed of such changes), the development of new technologies, and the sheer scale of the new projects.

“Larger and larger projects are putting pressure on the upstream construction market,” the report states. “They may be few and far between, but the largest offshore projects are challenging market capacity and will challenge the general upstream capacity when they become operational.”

Marsh reports that in 2013, insurance capacity for energy firms has remained largely buoyant as a result of the continued absence of a market-changing event and the arrival of new entrants fuelling competition in major territories.

“The market needs to face up to a dilemma: there is too much capacity for most risks, but not enough for a few,” the report adds.

Overall, “the energy market has continued to evolve over the last few months, returning to a similar position to where it stood at the beginning of the year,” notes the report. “The downstream market is flat to up, while the upstream market is clearly showing signs of weakness, with single- to double-digit reductions across the board.”