The oil slick befouling shores in the Gulf of Mexico is also set to sully the insurance industry’s bottom line.
The Insurance Information Institute (I.I.I.) is estimating insured losses related to the April 22 explosion of the Deepwater Horizon oil rig at $1.4 billion. Although the explosion killed 11 workers, I.I.I. says property damage and liability policy policies are likely to generate the largest dollar-amount claims. Business interruption/loss of production policies, environmental/pollution liability coverage and workers’ compensation/employers’ liability policies are also likely to come into play.
As a basis of comparison, the explosion and fire of Occidental Petroleum’s Piper Alpha facility in the North Sea in 1988, which killed 167 workers, generated $3.4 billion in 2009 dollars even though the event was not accompanied by a significant release of oil into the environment.
“The insurance losses from the sinking of the Deepwater Horizon will be significant and one of the largest losses ever for global offshore energy insurance and reinsurance markets,” Dr. Robert Hartwig, an economist and the president of the I.I.I said in a statement. “The risks inherent in carrying out such a complicated endeavor, however, are well-syndicated, with the insured loss spread across a broad spectrum of insurers and reinsurers on a global scale.”
However, because many major oil concerns such as British Petroleum (BP) make extensive use of self-insurance, it may help to mitigate insurance industry losses. “This fact, along with the possibility that some parties could eventually exhaust the limits of their insurance coverage as losses mount, means a substantial share if not the majority of losses could be financed by the Deepwater Horizon project participants themselves, through their existing in-house resources,” Hartwig said.
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