The ultimate extent of damage and insurance industry losses from the BP Deepwater Horizon oil spill in the Gulf of Mexico is still unknown, but an industry environmental coverage expert says carriers should leverage the event to create new coverages rather than exclusions.
Rates for “anything in the oil and gas arena” will go up from 10-to-20 percent, according to John O'Brien, president of the environmental product line at Ironshore, speaking during a recent Advisen webinar on the BP oil spill.
“I guarantee those numbers will continue to go up,” he said, adding that the product was probably priced too low to start with.
He said he also believes the number of insurers and reinsurers involved in paying for the loss will rise.
Mr. O'Brien observed that the “initial reaction from the industry was a little bit slow. I did see some companies come out with exclusions–specifically on renewals for the Deepwater Horizon Spill.”
However, Mr. O'Brien noted, “I would advise you and any of your clients to try and negotiate those exclusions off. That's really not what the industry should be doing.”
Every catastrophe, he said, creates two kinds of opportunities–an “opportunity for companies to exclude things and take away coverage,” along with “an opportunity for companies to look to the future to see what kind of products are out there to address these exposures.”
While the exposures aren't new, he said, there is new awareness. For example, “before 9/11, nobody thought about buying terrorism coverage,” Mr. O'Brien noted. “And if you talked about terrorism coverage to anyone in the real estate industry, they would say, 'That's crazy.'”
He added that commercial real estate firms and apartment owners never bought environmental insurance until mold became an issue.
“I think we have a similar opportunity here,” according to Mr. O'Brien. “There are companies in the hospitality industry and condos and co-ops that are along the Gulf Coast and all over the country, for that matter, that typically are not purchasers of environmental insurance because they don't see the need for it.”
He explained that with most pollution policies, business interruption coverage is only triggered when an owner has to clean up a pollution condition on the property. Pollution on the beach–such as tar balls–however, would not trigger the policy, since the beach is not owned by the hotel.
This situation, he said, leaves an opportunity for the market to create a “contingent business interruption type of cover,” adding that “those are the types of things that get me excited about where we're going to move forward.”
Mr. O'Brien said the focus will be on the Gulf Coast, but that “rocking horse” oil pumpers and chemical plants exist all over the country.
He concluded, “That's the one good thing that will come out of all of this.”
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