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According to a report released earlier in the year by security vendor Tripwire, 82% of oil and gas industry respondents reported that their organizations experienced an increase in cyber attacks over the previous 12 months. Additionally, 53% of respondents stated that the rate of cyber attacks had increased between 50% and 100% during that same period. Further, almost seven out of 10 respondents indicated a lack of confidence in their organizations to detect and stop attacks.
“I think certain areas of the space may be more susceptible to [cyber threats], such as midstream asset owners, refiners and processing plants, in regard to terrorist attacks, foreign and domestic,” Blanquez says.
As connectivity continues to increase in the oil & gas businesses, cyber attacks will pose an increasingly significant threat, and the need for strong cyber insurance solutions will become even greater. Damage from energy-related cyber attacks can include property damage, pollution, loss of confidential information and business interruption.
Therefore, the need for oil & gas companies to have appropriate cyber insurance protection is crucial.
Opportunities for producers
Given the soft rates in the oil & gas marketplace, one might assume that companies would take the opportunity to purchase a wider variety of insurance products and take additional risk off their balance sheets. But according to a recent Marsh Insights article, oil & gas organizations are not yet taking advantage of lower prices in a benign market to secure greater protection in uncertain times.
Does that potentially provide an opportunity for brokers in the space? Taking the chance to educate their clients on the benefits of seizing on the soft rates to transfer more risk off their balance sheets could represent a valuable opportunity for brokers to demonstrate their value in the chain.
On top of those opportunities, Hill cites a number of workplace concerns that potentially afford brokers a chance to assist on the risk management side.
“The oil & gas industry presents some real health and safety concerns for employees and subcontractors,” he says. “The work exposes these people to struck-by, caught-in and caught-between hazards. Explosion and fire hazards are always present. Falls from equipment are not uncommon. There are confined space concerns.
And the work also presents chemical exposures. The industry has a unique exposure to hydrogen sulphide [H2S], or what is sometimes called ‘sour gas.’ This is a very serious hazard that can result in death. “Additionally,” he continues, “workers may be exposed to silica during hydraulic fracturing. The industry uses a lot of water, and water disposal wells create some interesting hazards, including frequent earthquakes. Risk management is a big job in this industry.”
Looking ahead, Hill isn’t very optimistic in his outlook for the market.
“The price of oil is currently about $45 per barrel. My perception is that economic forces at work will not allow the industry to recover in 2016, and perhaps not in 2017. As a result, we will continue to see cancellations of policies put in force over the last several months, and about 25% of our renewals will not purchase coverage this year. The firms that continue in business are going to have much lower gross revenue than in previous years, so premiums will continue to be depressed.
“Interestingly, the oil & gas industry is swimming in debt, [with] overall borrowing of something like $2.5 trillion. This debt actually works against the price of oil by causing over-indebted companies to pump more oil in an effort to service their loans. If the price of oil continues to be depressed for an extended period of time, we may start to see an increasing rate of defaults and more pain in the industry in general.”