WTW’s latest Energy Market Review, reveals a significant disparity in the desirability of clients within the energy insurance market, notable amid ongoing geopolitical and economic instability.
The global broker noted that while the sector continues to offer stability, particularly favouring top-tier clients, it poses challenges for those with smaller, less desirable placements.
The report also highlights a trend of carriers focusing their growth ambitions on highly desirable upper-tier business, driven by the competitive pressures in the market. This has led to a divide, enhancing conditions for preferred clients but complicating access to optimal terms for others.
Graham Knight, WTW’s global head of natural resources, noted the disparity caused by the “widening desirability gulf”.
“[It] is great news for those clients considered upper tier as competitive pressures for this business will most likely drive softening rate trajectories throughout 2024. Conversely, this is less good news for the smaller, less desirable placements which could face more of a challenge for optimum capacity,” he said.
Despite these market dynamics, WTW finds that the energy sector remains robust, with no indications of insurers planning to exit. The availability of risk and performance data has also sharpened carriers’ focus on the most profitable segments of their portfolios, fostering a homogenisation of risk appetite among them.
That said, the scarcity of upper-tier business relative to demand could force clients to make difficult choices about their market alignments, potentially exacerbating the division between more and less favoured clients. This scenario could lead to the eventual withdrawal of smaller, specialised carriers who may struggle without the premium volume from top-tier business.
The study also underscores the proactive stance of insurers regarding environmental, social, and governance (ESG) issues, with many adopting supportive rather than exclusionary approaches to clients transitioning to new energy technologies. Insurers are increasingly ready to address emerging risks associated with the energy transition, including technologies like carbon capture and storage, and hydrogen.
Looking ahead, Knight emphasised the importance for risk leaders to focus on emerging risks that could significantly impact businesses as they adapt to the evolving energy landscape.
“In 2024, risk leaders will need to consider the longer-term emerging risks on the horizon,” Knight said. “The energy transition, geopolitical developments, and the changing macro-economic environment are converging to create new risk considerations that could have a more severe impact on businesses than was previously anticipated. As the whole energy system undergoes transformation, adaptation and strategic decision making will be crucial."
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