Increase in Energy Industry Losses in Latin America

by Zelle LLP
Contact

Zelle  LLP

[co-author: Daniel A. Correa]

Para ver esta página en Español, por favor haga clic aquí.

Recent studies in the insurance industry have shown that the fall in oil prices has historically led to an increase in claims in refineries and petrochemical plants.
The 2016 Marsh report, in relation to the 100 claims in the hydrocarbon industry of highest cost (“The 100 Largest Losses, 1974-2015”), contains a graph that identifies such claims. Generally, it can be concluded that the risk increases when attempting to produce savings and the following occurs:
  • The amount of personnel is reduced, as is investment in safety training programs;
  • Projects for expansion and rehabilitation of plants with long operational life are reduced or paralyzed;
  • The number of interested professionals in the industry is reduced, which can create a generational gap causing knowledge transfer programs to suffer; and
  • Risks of disturbances exist related to budget tensions due to the low prices of petroleum, especially in countries such as Libya, Iraq, Nigeria, Brazil and Venezuela (according to the Oil & Gas Journal). 
We have seen recent fires at plants in the United States (Pasadena Refinery, LyondellBasel Plant, Shell Refinery Motiva), in Mexico (PEMEX Veracruz) and in other countries in Latin America. It may be too early to conclude that these are directly related to the low price level of the barrel of oil, a phenomenon that has affected the industry since mid-2015, but the odds are high.
Underwriters need to be prepared to assist insureds in the energy industry in the most efficient manner, since large claims can greatly affect the stability of these clients, also impacting financial products and associated schemes such as property, pensions and many others. As Marsh concludes in the abovementioned report, "The next challenge is for the commercial insurance market to respond to the changing demand of energy companies and to offer lower retentions, higher limits and/or greater coverage, in a way that recognizes the continuing cost pressures that the energy industry must face
Latin American countries such as Ecuador and Peru have continued their investments in projects and expansions of different plants. But at the same time there are difficulties in countries like Venezuela and Mexico due to government control of state-owned oil companies. At least in the case of Mexico there is an opening to a sound amount of foreign investment. 
There is no greater risk than a country that is on the brink of bankruptcy and does not want to accept foreign aid or investment, especially when its plants and deposits are of high international interest, and when the economic conditions as discussed above stimulate a trend towards large claims. 
The key to managing energy losses in Latin America is to first know the industry thoroughly, as there are not necessarily as many experts available or capable companies as in more developed countries. Likewise, the culture of each country must be known in order to understand how the insured should be treated, especially in understanding what internal pressures they may have and how to achieve the greatest collaboration of all parties. This categorically includes the availability of documents when assessing the root cause or extent of damages and repairs relevant to a major incident -which tends to generate a significant delay in the handling of the incident and a potential increase in loss of profit claims. 
Finally, the local legal environment can play a crucial part in many key aspects, such as the interpretation of policy wording and its applicability in the jurisdiction, or maybe bring certain requirements related to the adjustment process, or special rules relating to how any disputes between the parties be handled. Insurers should be aware that energy claims are very likely to attract the involvement of local authorities, thus putting extra pressure on the insured relating to an array of legal and practical issues including pollution, failure to meet established domestic production quotas, and inquiries relating to safe working conditions, for example.   
Good communication and correct management of expectations continue to be indispensable tools to adequately handle this type of claims in Latin America.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Zelle LLP | Attorney Advertising

Written by:

Zelle  LLP
Contact
more
less

Zelle LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.