Insurers Need To Innovate Energy Sector Risk Management: Marsh

Developing energy sector technology demands will provide new underwriting opportunities for insurers, the chief executive of Marsh insurance brokerage said.

Dan Glaser, Marsh chairman and chief executive officer of the firm made that forecast at the 44th annual Marine Insurance Seminar in Houston, according to a copy of his remarks released by his company.

Mr. Glaser called on the insurance industry to display ingenuity, discipline and vigor to meet the emerging needs of clients in the energy sector.

Discussing the expanded development of alternative and renewable energy sources, such as wind and solar power, Mr. Glaser mentioned the need for major enhancements to the energy distribution grid, which he said may present opportunities for innovative risk approaches.

He also observed that pending regulations, such as cap and trade, and other initiatives to reduce greenhouse gas emissions, are leading energy producers that rely on fossil fuels to seek new solutions, such as carbon capture and sequestration, noting that these projects "need sound risk management and transfer to attract investors."

"The challenge for all of us is to recognize that the 'tried and true' risk management approaches and strategies have to be continually challenged and improved. Innovation matters - and it's no longer elective," Mr. Glaser emphasized.

"The tide of our times has served to elevate integrated firm-wide risk management to the level of the imperative," said Mr. Glaser, underscoring the need for energy companies to navigate increasingly complex challenges, including fallout from the global economic crisis, energy price volatility, and natural catastrophe risks.

Calling enterprise risk management (ERM) "a cultural, strategic and operational imperative" that "needs to be embedded in the culture and practices of the entire organization," Mr. Glaser said there is an understanding within the energy sector that "ERM is a framework of analysis that allows an organization to recognize and avoid a significant surprise."

In recent years, the insurance industry has developed solutions to respond to the energy sector's needs for oil and gas reserve production protection, contingent capital for business interruption, as well as for coverage to help stabilize margins for refining and petrochemical plant production, he said.

In this context, Mr. Glaser pointed to Marsh's role in developing a surety solution to help protect plant performance, and insurance to provide decommissioning funding for nuclear power plants.

"The energy industry is the lifeblood of production and commerce, facing new and ever more challenging risks every day," Mr. Glaser said. "The good news - the excellent news - is that the insurance industry has the vision, intellect, tools, methods and motivation to help companies manage risks on the road to reward."