Attention oil and gas aficionados! Let’s take a moment to look back on the year 2020 in the oil and gas insurance marketplace…the good, the bad, and the ugly.
If any of you are like me, I rolled into 2020 with optimism and hope. WTI prices were trending up (hitting a high of around $62/bbl in mid-January), field operations were picking up, and independent consultants were signing contracts. Energy insurance professionals were salivating at the idea of $70/bbl to $80/bbl, as those prices have historically shown a significant uptick in the production activity across the country.
At this point in time we were seeing a trend toward a firmer market with limited capacity, but we still had the ability to place chunks domestically, with the London market willing to continue with their current commitments.
Unfortunately, the optimism and capacity were short lived, and from that point in January we experienced a steady decline in pricing due to global oversupply and pricing wars. Insureds started to project 20% to 30% exposure decreases, while losses continued to roll in.
But fear not energy professionals, help was on the way. The 2nd quarter of 2020 saw OPEC (Organization of the Petroleum Exporting Countries) agreeing to limit production in order to correct the oversupply and thus normalize global pricing. High fives all around! Prices will normalize in the industry and we will get back to work.
Nothing short of global pandemic could stop us now!
Unfortunately we all know what happened there, and on April 20th, 2020 the future pricing for a barrel of oil dropped to about $40.
Prices at this level are obviously devastating to the industry as a whole, and field operations downgraded to basic maintenance, drilling activity was diminished to minimum contractual requirements, and independent consultants were relieved of their onsite duties.
With drilling activity the true measure of capital engagement, things got bleak fast. Our clients are struggling to stay afloat with little to no work, coupled with little hope of any additional contracts in the near future. Together with the market crash the insurance market continues to restrict capacity and we continue to experience a market correction of the auto and excess rates.
I truly believe that in times like these specialists in the field show their true worth. Many of us worked our entire year advising clients on ways to structure their risk management programs in order to pick up their true exposure. Helping insureds with mid-term rewrites, advising them on possible capacity cutbacks, and re-tuning massive amounts of premium are all things that we do not relish as insurance professionals, but are necessary to provide the service that we have been paid for. Relationships with the markets have been strained, and faith in the industry as a whole has been tested, but this too shall pass.
As we move into 2021, let’s take a step back to reflect on the positives. As industry experts, 2020 provided us the opportunity to show our true worth to both the carriers and insureds that we do business with. As we have helped each other through tough situations, relationships with our true partners have strengthened. While we shouldn’t forget the lessons that we have learned this year, let’s not let them cloud our faith in the industry. Good luck to you all in 2021, and let’s go write some business.