"The GL is experiencing the least amount of rate pressure at just under 5%. But with Auto rate increases at 15%-25%, and Excess rates at 10%-20% and higher, they more than make up for the flatness in the GL," explained Grant Bryant, RPS Area Senior Vice President, Energy and Environmental.

Diminished Capacity Continues

In addition, a great deal of capacity exited the space due to the troubled London insurance market, which was hit hard by the pandemic, resulting in greater dependency on the U.S. domestic market.

"Lloyd's is just starting to get back to work," noted Bryant. "Two or three years ago, for example, a $20M-$25M Excess tower was built with two or three carriers; today you need five insurers to create a tower over a tough primary risk, particularly if it's auto-driven."

Increased pollution and cyber exposures are also impacting the Energy market. The 2021 ransomware attack against the nation's largest pipeline system for refined oil products, along with other cyber-related incidents, has brought cyber exposures in the Energy industry to the forefront. "There are a great deal more inquiries for Cyber insurance," said Bryant.

Commercial Auto Tort Reform Could Help with Nuclear Verdicts

Tort reform may help to stem the nuclear verdicts seen on the Auto Liability side within the Energy sector. "The Texas governor signed into law a bill that makes it more difficult to take trucking companies, including in the oil and gas sector, to court, which may alter the landscape and mitigate some nuclear verdicts," said Zach Burdine, RPS Area President, Texas.

The Texas bill, among other things, requires a two-part trial in civil actions involving a commercial motor vehicle, if requested in a motion by the defendant. In the bifurcated trial system, the driver of the vehicle subject to the civil action must be found "negligent in operating an employer defendant's commercial motor vehicle" before the lawsuit can proceed to the second phase, which involves a claim against the driver's employer.

New Entrants in the Energy Insurance Market

Several seasoned underwriters have formed Energy divisions with other companies, which could help stabilize the market in addition to tort reform legislation. "We're seeing great success with these individuals who we know and trust," said Burdine.

Going to Market

Expectations are that Excess rate increases in the Energy sector will continue until the end of the year and likely into the first and second quarters of 2022. Setting realistic renewal expectations for insureds will be very important. In addition, evaluate the insureds' specific exposures and contractual obligations, along with risk transfer options. Become familiar with the insureds' master service agreements and responsibilities to provide alternative solutions for a competitive insurance program, including higher deductible and quota-sharing options.

Learn more about the unpredictability of the Excess Market and its impact on the Energy industry in the U.S. Casualty Market Outlook: Mid-Year 2021.

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