Experts urge ME energy firms to invest in risk management

Experts urge ME energy firms to invest in risk management (1) copy

RITIKA SHARMA / Emirates Business

Irrespective of dropping revenues due to oil slump, energy firms should maintain their investment in risk management in order to reduce the potential for future major incidents and insurance claims, industry experts suggest. Due to the known successive correlation between oil price falls that resultantly lead to insured losses, experts are calling upon energy firms to be more aware about risk management investments.
These and more advises on insurances and finances during such times were discussed at the formal launch of a research report, ‘Can Energy Firms Break the Historical Nexus Between Oil Price Falls and Large Losses?’ at the bi-annual National Oil Companies (NOC) conference in Dubai.
Marsh, a leading global insurance broker and risk adviser, and a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. profoundly analyses the historical sequential correlation between oil price falls, which led to energy firms cutting costs, including safety training and education, which in turn, led to an occurrence of significantly larger insured losses in the following period.
Talking about the report, Adam Wakeley, Dubai based Energy Practice Leader told Emirates Business, “Energy firms in the region should maintain their investment in risk management during this period of uncertainty. Historically, we have seen companies reduce their spending on the maintenance of key infrastructure and health and safety. This has been followed by periods of significant losses. By understanding these lessons, we can ensure that history is not repeated. Energy
companies can also take advantage of the current favourable insurance rating environment, transferring risk to the insurance market in a cost-effective way.”
According to Marsh’s report, insured losses in the global upstream energy sector reached a peak in the 1980s shortly after the price of Brent crude oil fell from US$35 to US$15 per barrel. In the late 1990s, this cycle occurred again when the price fell below US$10 per barrel and again in the years following the 2008 slump, when the price fell from more than US$100 to US$32 per barrel.
“Historically, falling oil prices have prompted cuts in infrastructure and maintenance spending, and less investment in health and safety measures and employee training,” said Andrew George, Chairman of Marsh’s Global Energy Practice. “Analysis of past cycles indicates that cost-cutting decisions were followed by an increased frequency of major incidents or large losses.”
Marsh’s analysis follows a period of significant investment in risk engineering by energy firms in the Middle East.
“Thanks to continued investment and boardroom support, energy firms in the Middle East have made major improvements in their risk management protocols over the past two years and many are now ranked among the world’s elite in their approach to risk and emergency response,” added Mr George.
“Firms that have invested in risk management have seen real benefits. Energy companies should exercise caution when implementing cost-cutting measures in response to
this latest downturn to avoid a repetition of the major losses that occurred in the past.”

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