Energy Infrastructure and Vulnerabilities Insurance Market Perspectives U.S. Department of Energy Quadrennial Energy Review Public Meeting Washington, DC April 11, 2014 Download at www.iii.org/presentations Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: 212.346.5520 Cell: 917.453.1885 [email protected]
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Energy Infrastructure and Vulnerabilities Insurance Market Perspectives U.S. Department of Energy Quadrennial Energy Review Public Meeting Washington,
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Energy Infrastructure and Vulnerabilities
Insurance Market PerspectivesU.S. Department of Energy
Quadrennial Energy Review Public MeetingWashington, DC
April 11, 2014Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
Energy Is a Very Large and Very Challenging Business for
Insurers Worldwide
Energy is One of the Few Major Markets/Industries With Clear
Long-Term Growth Trends
3
Energy Insurance Market Summary
Energy is Among the Insurance Industry’s Largest Industry Sectors
Insurers Have Extensive Experience Offering Comprehensive Solutions Across the Entire Spectrum of Energy Industry Property and Liability Exposures
Extraction (on/offshore)
Refining and Storage
Transportation (marine, rail, truck)
Generation (Electricity)
Renewables
Workers Compensation
Management Liability (D&O)
4
Energy Insurance: Market Summary (cont’d)
Multi-Billion Dollar Limits Are Available in Most Segments Property and liability exposures Risks are rewarded for superior experience
Results Can Be Volatile
Insurers Work Closely With Client Risk Managers
Price of Coverage is Both Event Driven and Cyclical
Market is Truly Global Substantial share of underwriting capacity originates abroad
History of Working Closely to Reduce Loss, Enhance Resilience Major losses stimulate innovative risk management Price (premium/rate) is a powerful signal about risk; Motivates
354.8
523.9
629.8
729.2
819.6
406.0
0
100
200
300
400
500
600
700
800
900
1990 2000 2010 2020P 2030P 2040P
World Primary Energy Consumption, 1990-2040P
Source: Energy Information Administration, 2013 International Energy Outlook, Insurance Information Institute.
Between 2010 and 2040, energy consumption in projected to increase by
56.4% worldwide
Quadrillion BTUsGrowth in worldwide
energy consumption will create more risk and
vulnerabilities (natural and manmade); Innovations in
risk management and insurance are needed.
Biofuels, $0.3 , 1%
Oil, $10.1 , 27%
Natural Gas, $9.5 ,
25%
Power, $16.9 , 44%
Coal, $1.1 , 3%
Projected energy infrastructure investment
through 2035 total $38 trillion; Implies substantial
incurrence of risk.
Cumulative Projected Investment in Global Energy Infrastructure, 2011-2035 ($ Trill.)
Source: International Energy Agency, World Energy Outlook 2011.
7
US Electric Power Generation by Fuel Source, 2010-2035F (Billions of Kilowatt Hours)
3225 26 26 27 27
776903 874 882 983 1,074
807 830 887 917 914 887390 504 544
579594 630
1,799 1,531 1,604 1,710 1,757 1,803
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2010 2015 2020 2025 2030 2035
Coal Petroleum Natural Gas Nuclear Renewable Other
Source: US Energy Information Administration, Annual Energy Outlook 2012, Appendix A7.
Demand for Electricity Is Expected to Grow at a 0.6% Annual Rate Through 2035. Renewables and Natural Gas Will Account for an Increasing Share of Fuel Source
3,806 3,796 3,9374,118 4,279 4,427
The Past Few Years Have Not Been Kind to Insurers or Utilities
8Source: Insurance Information Institute research.
Hurricane Irene: Aug. 27-29, 2011
Insured Losses: $4.3 Billion
Customers w/o Power: 5 Million
“Snowtober” Blizzard: Oct. 29, 2011
Insured Losses: ~$1 Billion
Customers w/o Power: 2.7 Million
Derecho: June 29, 2012
Insured Losses: ~$1+ Billion
Customers w/o Power: 3.7 Million
Superstorm Sandy: Oct. 29-30, 2012
Insured Losses: $18.8 Billion Customers w/o Power: 8.1 Million
*Through 12/31/13.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Well
Below 2011 and 2012 YTD Totals.
2012 was the third most expensive year ever for insured CAT
losses
Record tornado losses caused
2011 CAT losses to surge
($ Billions, $ 2012)
9
10
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1993–20121
0.1%
1.7%
3.8%4.7%
6.3%
7.1%
36.0%
40.4%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2012 dollars.2. Excludes snow.3. Does not include NFIP flood losses4. Includes wildland fires5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $158.2
Fires (4), $6.5
Tornadoes (2), $140.9
Winter Storms, $27.8
Terrorism, $24.8
Geological Events, $18.4
Wind/Hail/Flood (3), $14.9
Other (5), $0.2
Wind losses are by far cause the most catastrophe losses,
even if hurricanes/TS are excluded.
Tornado share of CAT losses is
rising
Insured cat losses from 1993-2012
totaled $391.7B, an average of $19.6B per year or $1.6B
per month
11
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
$7.8 $8.7 $9.2 $11.1$13.4$18.8
$23.9 $24.6$25.6
$48.7
$7.5$7.1$6.7$5.6$5.6$4.4
$0
$10
$20
$30
$40
$50
$60
Irene (2011) Jeanne(2004)
Frances(2004)
Rita (2005)
Tornadoes/T-Storms
(2011)
Tornadoes/T-Storms
(2011)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Sandy*(2012)
Northridge(1994)
9/11 Attack(2001)
Andrew(1992)
Katrina(2005)
Hurricane Sandy became the 5th
costliest event in US insurance history
Hurricane Irene became the 12th most expense hurricane
in US history in 2011
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
Source: U.S. Energy Information Administration, accessed 4/10/14 at http://www.eia.gov/dnav/ng/hist/n9050us2a.htm 12
U.S. Natural Gas Marketed Production,1900 - 2013
Million Cubic Feet
Hydraulic fracturing (fracking) has pushed US natural gas
productions to record levels. The U.S. is now the world’s
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
Millions of Barrels per Day
Crude oil production in the U.S. is expected to increase by
82.6% from 2008 through 2015
15
Oil & Gas Extraction Employment,Jan. 2010—March 2014*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.
415
6.4
156.
715
7.6
158.
715
7.8
158.
015
9.5
160.
016
1.5
161.
216
1.2
163.
116
4.4
166.
616
9.3
170.
117
1.0
172.
517
3.6
176.
317
8.2
178.
518
0.9
181.
918
3.1
184.
818
5.2
185.
718
6.8
187.
618
8.0
188.
018
8.2
190.
019
1.7
191.
919
3.4
192.
419
2.6
193.
119
3.3
195.
019
6.5
199.
720
0.6
203.
020
4.1
205.
320
7.7
208.
1
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30/2
Mar
-12
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Oil and gas extraction employment is up 33.1% since Jan. 2010 as the energy sector booms. Domestic energy production is essential to any robust economic recovery in
Insurance Industry Concerns Related to Energy Infrastructure Grid Vulnerability to Physical (Terrorist) Attack
April 2013 attack on PG&E substation in Metcalf, CA Question of public disclosure of such events per DOE IG report Expiration of Terrorism Risk Insurance Act 12/31/14
Pipeline Risks Pollution/Environmental risks
Offshore Remains a concern post-Deepwater Horizon Vulnerable to manmade and natural disaster risks
Arctic Pollution New frontier
Rail Transportation Concerns in the wake of several major, costly explosions
Cyber “Data” policies available (protects value of digital assets) Management liability coverage (D&O) increasingly available Broad property and liability is not commonly available
Source: Insurance Information Institute research and Willis 2014 Energy Market Review.
The Spectrum of Political Violence Including Terrorism
Sources: 2014 Willis Energy Review, p.25. 17
The view is that eventually terrorism risk could be
managed within the spectrum of Political Violence risks,
which are a constant concern in the global energy sector
DISTURBING FACTS
• In the US, 40% of all cyber attacks on critical infrastructure assets in 2012 occurred against the energy sector
• Globally, it’s estimated that cyber attacks against oil and gas infrastructure will cost oil and gas companies $1.87 billion by 2018
• The UK govt. estimates that oil and gas companies in the UK already lose ~GBP400 million per year as a result of cyber attacks
Sources: ICS-CERT; ABI; KPMG
www.iii.org
Thank you for your timeand your attention!
Twitter: twitter.com/bob_hartwigDownload at www.iii.org/presentations