Captive Insurance Is Important for Risk Management in Energy Companies

In a recent report provided by Aon, titled Supporting The Energy Industry Through Captive Insurance Programs, the organization said that captive insurance is an important component of energy companies' risk management strategies.

Based on data from its 2017 Global Risk Management Survey, Aon said 40 percent of energy sector respondents currently utilize captives, and 10 percent said they would like to form their own insurance vehicle within 5 years.

Aon manages 65 energy captives. Among Aon's energy clients, 52 percent are in oil and gas extraction, 20 percent are in petroleum refining, and the remaining 28 percent are in mining and other natural resource related industries.

The report explores captive trends in the energy sector focusing on the following areas.

• Why do energy companies form captives? Aon's 2017 study found that captives are primarily formed for strategic risk management tools, reinsurance market access, and insurance program control. 
• Is there value in having a captive as an energy company? According to the study, over the past 5 years, there has been a "steady increase" in captive formations by organizations with revenues under $10 billion. Aon believes captives allow companies of all sizes to lower their total cost of risk, as captives usually have lower loss ratios and are cost effective to operate.
• How are energy captives structured? An overwhelming majority of captive owners in their study chose to set up single parent captives (90 percent) because single parent captives offer the greatest flexibility and control.