The explosion of the Deepwater Horizon oil rig in the Gulf ofMexico on April 20 left 13 dead and 17 injured, leading to amassive oil spill and environmental disaster. The event causedscrutiny of the risk management practices of energy giant BritishPetroleum and ultimately led to the removal of its chief executiveofficer.

More recently, it prompted the U.S. Department of Justiceto file a lawsuit against BP and other companies involved inthe Deepwater Horizon joint venture, including rig owner Transoceanand QBE Underwriting Ltd., Lloyd's Syndicate 1036, one ofTransocean's insurers. BP leased the semi-submersible rig DeepwaterHorizon from Transocean and held majority ownership in the drillingproject.

The spill, which wasn't capped until July 15, released nearlyfive million barrels of crude oil. Many residents along theLouisiana and Florida coasts were left jobless as a result.

BP claimed responsibility for the cleanup and set up theGulf Coast Claims Facility, effective Aug. 23, to be the onlyauthorized organization managing business and individual claimsrelated to the Deepwater Horizon Incident.

In June, at the urging of President Obama, BP agreed to put $20billion into a fund to pay Gulf oil disaster claims. The fund isbeing administered by Ken Feinberg, who was special master of thefederal compensation fund for Sept. 11, 2001.

BP said its payments to claimants in the first few months–$134million in July, $93 million in June and $39 million in May–madethis one of the largest claim payment programs conducted in athree-and-a-half-month period.

Speaking to the motive behind the fund's creation, RobertHartwig, president of the Insurance Information Institute, said itwas done “so that BP can continue to operate, because quitefrankly, BP is worth a lot more alive than it is dead.” He pointedout that BP “historically has nearly minted money,” making $64billion after taxes between 2007 and first-quarter 2010. BP's“prodigious earnings capacity” was its primary means of insurance,he said.

The fund, he said, was also designed to pay quickly andeliminate trial lawyers' settlement cuts, he said, adding that itwould have few implications on the insurance industry since BP is largelyself-insured.

Beyond BP, however, other project participants, such as AnadarkoPetroleum, Halliburton, a service provider, and Transocean werecovered by commercial insurance. With European and Bermuda insurersand reinsurers announcing estimates ranging from tens of millionsto a high of $600 million (for Lloyd's), early insured loss guessescame in at $1.5 billion.

In June, Moody's Investors Service tallied some of the numbers,estimating an insured loss range of $1.4 billion to $3.5 billion and noting that claims could comein a host of lines–marine, general liability, environmental,directors and officers liability, control of well, businessinterruption, and workers' compensation.

In the immediate aftermath of the event, participants in theoffshore energy insurance market reported pricing spikes ranging for 15percent for shallow rigs to as high as 50 percent for deepwateroperations in the Gulf, but there has been no market-wide pricingshift. In October, a group of experts attending an Aon energyconference said that even the harder energy insurance market wasshort-lived, predicting that those prices will flatten over the next 12 months.

Over at BP, in response to questions about ineffective riskmanagement practices, the company announced in September that ithad come up with a plan to form a new risk management and safety unit. The unitreports directly to Bob Dudley, the new CEO who replaced TonyHayward.

The Safety & Operational Risk function is authorized tointervene in all aspects of BP's technical activities, and its ownstaff of experts will be embedded in BP's operating units–includingexploration projects and refineries, BP said. The company also saidthe unit would be responsible for ensuring that “all operations arecarried out to common standards and for auditing compliance withthose standards,” BP said.

Over the summer, a group of global investors called for tighter risk control measures, asking energycompanies for their oil spill prevention measures. They alsoqueried insurers, suggesting a more active loss control role inresponse to the BP disaster, according to CERES, a network ofinvestors and environmental groups.

Andrew Logan, director of oil and gas industry programs forCERES in Boston, told NU that BP's announcement said moreabout BP than the industry. “The fact that they are essentiallycreating almost a nanny-state throughout the company to overseesafety says a lot about how broken the safety culture is at BP,” hesaid.

In October, the federal government lifted a ban on deepwaterdrilling, issuing new rules and setting standards that must be metbefore drilling can resume. The new regulations, issued by theDepartment of the Interior, tightened standards for well design,blowout preventers, safety certification, emergency response andworker training in the industry.