Munich Re said during a press conference at the Reinsurance Rendez-Vous in Monte Carlo in September that its new concept for insuring offshore oil drilling has the potential to create coverage of about $10-to-$20 billion per drilling operation in the international insurance market.

With the increasing scarcity of fossil fuels and growing demand for energy, exploratory drilling, now deep below the earth's surface and often far below sea level, has become more risky, Munich Re board member Torsten Jeworrek said.

He explained that drilling is becoming more complex, and remedying the damage is not something that can be done quickly.

He explained that operators, which are generally drilling joint ventures, may be held liable for death or injury, property damage, environmental impairment, and financial losses in the event of an accidental occurrence. Currently, he said, there is no separate cover for drilling operations, which are insured under the individual liability policies of the companies concerned.

As a rule, coverage is available subject to a limit of $1-to-$1.5 billion on the international insurance market. With Munich Re's new concept, he said, each individual drilling operation would be covered by a policy specifically developed for that risk.

As a result, he explained, it should be possible to increase liability limits to between $10 billion and $20 billion per drilling operation.

Based on the U.S. Oil Pollution Act, coverage would largely relate to cleanup and removal costs, impairment of natural resources and property damage, as well as loss of earnings in sectors such as fishing or tourism, Mr. Jeworrek added.

He also said Munich Re considers the tightening of safety standards crucial to the concept. To ensure such standards are met, he suggested that companies independent of the operators and possessing the requisite expertise--such as specialist engineering consultants--would need to monitor and oversee risk management from the start of a drilling project to its completion.