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Chapter 12 Marine and aviation reinsurance 12/9 Chapter

A3A Extent of cover and exclusions 12
Table 12.1 shows the issues that will determine the parameters of cover offered by both insurers and
reinsurers of the range of energy risks, including that of transit to site.

Table 12.1: Issues affecting the parameters of cover
Towage risks This is an area of significant liability. Towage of platforms is extremely hazardous and
there must be a careful consideration of the experience and the qualifications of the
towage company concerned. At this stage the insurance is one of a marine hull risk and
rated appropriately.
Oceanographical and No onshore risk suffers as much as offshore oil and gas platforms from weather-related
meteorological risks hazards. Following losses from recent hurricanes, underwriters are differentiating
between older platforms in shallower waters, where older design standards were
applied during construction and are now perceived to be unable to withstand an intense
hurricane, and newer and deep water structures where the damage potential is less
severe.
Energy underwriters have not only to consider the single risk exposure which is
substantial, but also the accumulated exposure that can come from such natural
catastrophes as hurricanes, earthquakes and tidal waves. Even simple conditions such
as fog have considerable potential to wreak havoc.
Currents These are a substantial source of danger for the stability and integrity of offshore
platforms. The continental shelves, where most such risks are situated, have the
strongest currents and these currents carry foreign bodies which impact on the pipes
and materials of the platforms causing abrasions.
Engineering risks Although similar to the engineering risks faced by onshore risks, additional cover issues
are raised by the location of offshore installations, sinking into the sea and damage
caused by objects falling from ships. Vibration and metal fatigue are of greater concern
due to the salt water location.
Fire risks The fire risks of a platform are particularly serious. One only has to consider the 1988
Piper Alpha loss to realise this. Production platforms have a petrochemical plant, a
hotel, a helipad and production facilities among other things, all in the size of a football
field lying on top of each other in a series of layers. The maximum probable loss (MPL) Reference copy for CII Face to Face Training
for such a risk is 100% and even more if the sue and labour clause applies.

Activity
Ocean engineering is the branch of engineering concerned with the design, analysis and operation planning of
systems that operate in an oceanic environment. See what design and execution facilities companies engaged in this
line of work offer that could impact on marine insurers and reinsurers.

Be aware
The sue and labour clause would require the platform owner to make every attempt to reduce or save the exposed
interests from loss. Under the terms of the clause, the insurer pays for such things as debris removal and loss
minimisation costs incurred in carrying out its requirements.

Some capital markets and hedge fund capacity has emerged via products which plug the gaps now
appearing in programmes, for example, business interruption deductible buy downs and excess
windstorm capacity.

A3B Underwriting considerations
The energy or, as it is often called, the rig account may represent a significant part of a marine portfolio
The rig account
and is kept separate from other business. may represent a
significant part of a
The value and limits of market covers are such that an excess of loss reinsurer would require additional marine portfolio
information, probably in the form of a detailed questionnaire. Questions to ask include the following:

• What are the reinsured’s involvements or commitments in any of the major world market placements?
• Are there any specific reinsurances in place that will be of benefit to the excess of loss reinsurer?
• Is coverage provided in respect of war and terrorist risks, and is that liability attaching to the
reinsured’s war or rig account?
• If cover for drilling or production activities is provided by the insurer and allocated to the rig account,
then a schedule of these liability risks should be provided. A detailed loss record covering at least the
past five years should also be provided.