The downstream insurance market continues to harden in Asia, with losses in countries, including Thailand and Korea, notes according to a new report by Willis Towers Watson (WTW), a leading global advisory, broking and solutions company.
In the report titled “ESG: transforming energy’s risk landscape Energy Market Review 2020”, released yesterday, WTW says that the gap in pricing between Asian and London-based markets is reducing significantly, especially with a majority of the Asian markets making headquarter referrals before underwriting a risk.
There are also elements of domestic hardening in countries like Korea, Taiwan and the Philippines amongst others.
At the same time, the downstream market in China remains competitive for domestic risk following the COVID-19 lockdown and pandemic situation, which has affected supply and demand in the oil & gas industry.
On the other hand, the Asian upstream insurance market remains stable in respect of rate increases for operational business. However, there are significant increases in upstream construction rates. The Asian upstream construction market remains more competitive than their London counterparts for smaller projects with an estimated contract value of up to $500m.
This hardening in upstream construction may be short-lived in Asia as volatile oil prices are causing project cancellation and delays. Such occurrences will put pressure on the markets regardless of their new business targets with less expenditure available. It will also create competition amongst the insurance markets to underwrite whichever projects that proceed.
Mr George Nassaouati, head of WTW Natural Resources at WTW in Asia, said, “We cannot underestimate the immediate challenge faced in the loss of demand as a result of COVID-19 and the impact of the recent oil price war, notwithstanding the agreement now reached by OPEC+ to cut production by 10% of global supply.
“While it is still too early to forecast exactly how these twin factors will play out in the months ahead, the potential effects on the energy industry are obvious; reduced capital expenditure, a reduction of exploration and production activities, lower refining margins and lower business interruption valuations. It will also have a knock-on effect on premium income levels for an insurance market that remains unprofitable for most lines of business.”
He said that while the world will eventually recover from COVID-19 and the energy industry will recover from the oil price war, one issue that is here to stay on a permanent basis is climate change, and the transformed risk landscape that now confronts the energy industry.
“In short, today’s energy businesses must commit to incorporating ESG standards and climate change into their risk mitigation strategies in order to ensure a sustainable future,” he said.
Original Link by the Asia Insurance Review: https://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/61255/Type/eDaily/Asia-Downstream-insurance-market-hardens-upstream-segment-stays-stable