American Oil and Gas Reporter - December 2015 - 80

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SpecialReport: Insurance Update
generally where it was.
Innovation in the energy insurance
market is seen most clearly in underwriting risk, rather than in new products. There
always has been a wide range of coverages
and value-added loss prevention services.
Innovation comes in the way an insurer
partners with brokers and energy buyers
to translate the carrier's broad energy experience, coverages and services to develop a custom plan aimed at better managing the specific account's total cost of insurance.
For example, consider a hydraulic
fracturing contractor with a large fleet. If
the company is not running all its units, the
insured likely is paying for coverage it may
not need, since pumps, trucks and other vehicles are idle and producing no real
over-the-road exposure. The broker, buyer and insurer should develop an insurance
program focused on the account's actual
needs. In this case, perhaps the commercial auto policy could reflect miles driven, rather than units operated.
I do not believe all buyers and brokers
fully realize the value available from
carriers. Some offer loss control services
that can help prevent general liability, commercial auto, workers' compensation and
other claims by proactively improving
safety. While always important, these
margin-protecting services become even
more critical as revenue falls.

Q: The catalyst for U.S. onshore activ-

ity has been growth in horizontal shale
plays. However, with lower commodity
prices, conventional vertical targets are
getting renewed attention, and many independents are looking at the potential of
applying drilling and completion methods
pioneered in shale plays to conventional
geologic settings. How do the risk profiles
differ for horizontal unconventional and
vertical conventional projects onshore, and
what are the implications for insurance
coverages? How does adopting "shale
play techniques (such as multistage completions in vertical wells)" change insurance requirements in conventional plays?
WATERS: The big difference is that
horizontal unconventional projects require higher pressure, more water, longer
wellbores, more perforations, and other
techniques that increase the margin of error, and therefore, potential risk exposure.
Consider a multistage fracture that requires

80 THE AMERICAN OIL & GAS REPORTER

several perforating zones. This increases
the handling of explosives and presents
more opportunities to perf the wrong
zone, both of which potentially could lead
to insurance-triggering events.
The activities linked to fracturing have
created controversy and public concern.
The scientific accuracy of much of the alleged "dangers" of fracturing reported in
the press is in question, given the depth of
wells and the way shale formations between lateral strata and aquifers act as impermeable buffers. However, if an exploration, drilling and production company
moves up the wellbore, bringing it closer to aquifers, and applies more perfs and
higher pressure, these concerns potentially may become more valid.
The impact on insurance likely would
be seen in the contracts between the operator and the contractor. As techniques
developed for horizontal plays are used in
more traditional vertical wells, there likely will be changes in risk transfer and ownership, particularly within a contract.
This will impact underwriting and risk-mitigating best practices.
Applying horizontal techniques to
vertical wells also may result in busier
drilling sites and the need to reinforce the
casing of existing wells to meet the
higher pressures involved in fracturing.
Both of these will present unique insurance challenges that should be reflected
in the operator's risk management program.

total insurance costs. Liberty Mutual Specialty Energy, for example, provides loss
control on all accounts, from fracturing
checklists to driver selection tools, to help
improve safety and prevent general liability, commercial auto, workers' compensation and other accidents that needlessly harm individuals and the bottom line.
In addition, buyers should make sure
brokers and insurers fully understand the
firm's commitment to safety and its safety program. Such transparency helps underwriters assess and price risk, potentially leading to better pricing and faster
quotes. When an insurer encounters a
prospect that is not clear about its safety
program or interested in value-added
safety services, it likely raises concerns and
questions about the risk.
One of the most impressive submissions I have seen was from a fracturing
contractor in North Dakota. The company opened the door to underwriters and the
public so each key constituent could see
the entire process and ask questions. That
company was very confident in its operations and risks, and that was reflected in
the underwriting process.

and improve capital efficiency, what advice would you offer operators to streamline their insurance costs while ensuring
adequate protection and avoiding potential coverage gaps? What steps can insurers take to help operators improve their
risk management programs?

tivity affecting the workers' compensation
insurance market for small- to midsized
companies? What are the overall trends
in worker safety incidents in exploration,
drilling and production operations? What
do you expect for the workers' comp
market in the year ahead, especially in regard to pricing?

Workers' Compensation
LEON LAGNEAUX
Amerisafe

Q: As companies strive to reduce costs Q: How is the decline in upstream ac-

WATERS: Developing effective and
efficient insurance programs requires focusing on value; that is, better managing
the total cost of insurance. This is best
achieved when buyers, brokers and insurers partner to identify all the risks an oil
and gas company faces, given its specific operations and market conditions, and
then develop a plan to manage and mitigate those exposures.
Buyers should look for insurers that offer a range of services, coverages and industry experience to help better manage

LAGNEAUX: Since a workers' comp
premium is a direct product of payroll, the
downturn has had a negative impact on carriers that write this coverage. While there
is a decline in premiums, there also is a decrease in claims with fewer people working. If the oil and gas industry has managed
to keep its more tenured, experienced
workers employed, the reduction in claims
should be greater than the decrease in premium on a relative basis. Experienced
workers tend to have fewer claims than in-

American Oil and Gas Reporter - December 2015

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