The nature of energy risks

Energy is an industry with expensive assets and rare but very large losses. A well blowout, a substation fire or a turbine breakdown can cost more than a company's annual budget. That is why energy risks are insured under special programmes, and large facilities are usually placed with the participation of reinsurers.

Oil and gas wells: control of well

The largest losses in drilling and operating oil, gas and water wells come from loss of control — an uncontrolled flow of drilling fluid, oil, gas or water to the surface or into other formations. Control of Well insurance (also known as Operator's Extra Expense) covers:

  • the costs of regaining control of the well and killing it;
  • fighting a fire at the well;
  • underground blowout;
  • drilling a relief well;
  • re-drilling to the depth reached before the incident;
  • clean-up and pollution remediation costs;
  • personnel evacuation costs;
  • damage to third-party property in the insured's care, custody or control.

Additional drilling risks

By agreement with the insurer, cover can be extended to technological incidents:

  • stuck pipe;
  • crossflow of formation fluids between formations;
  • incidents during well logging and perforating operations;
  • loss of drilling or cement slurry;
  • casing leaks;
  • incidents with drill string components and drill bits;
  • foreign objects falling into the well, collapse of the rig or its components.

Why this matters: killing a blown-out well and dealing with the consequences are very costly, and re-drilling to the same depth can cost more than the original drilling.

Power plants, substations and grids

Generating and grid companies use a set of programmes:

  • Property — buildings, structures and equipment against fire, explosion, natural disasters and unlawful acts.
  • Machinery breakdown — sudden internal damage to turbines, generators, transformers and boilers due to defects, staff errors or short circuits.
  • Business interruption — loss of profit and fixed costs during downtime after an insured event.
  • Construction and erection risks — during construction and reconstruction, including commissioning. See Construction and erection risks.

Compulsory insurance and liability

Many energy facilities are hazardous production facilities or hydraulic structures. Their owners must insure liability for harm caused by an accident under Federal Law No. 225-FZ (OSOPO — compulsory insurance of hazardous facility owners' liability). Learn more in Hazardous facility insurance.

Above the compulsory limit, companies voluntarily insure:

  • general third-party liability;
  • environmental pollution liability;
  • liability for the quality of products and services supplied.

How the rate is set

The rate is set individually for each facility. Factors include:

  • the type of facility and technology — exploration or production well, depth, reservoir pressure, presence of hydrogen sulphide; type and age of plant equipment;
  • the list of risks and limits;
  • the deductible;
  • the accident history and the state of the industrial safety system;
  • the insurer's capacity to retain the risk and the reinsurance terms.

The premium is the rate expressed in money as applied to the sum insured.

How to prepare for insurance

  1. Collect technical information: facility data sheets, drilling programmes, repair and incident records.
  2. Determine the value of the property and the possible maximum loss.
  3. Decide which risks you can retain through a deductible and which should be transferred to the insurer.
  4. Be ready for a site survey by the insurer's risk engineer.

Energy risk insurance is voluntary and the contract is concluded in writing. Large risks often require reinsurance. Polis Re specialists will help you prepare the information for insurers — submit a request or explore Corporate property insurance.