The Deepwater Horizon Gulf oil spill disaster will not be a watershed event for the P&C insurance industry according to Towers Watson. It could however create a market environment where tightening of insurance prices and terms within the energy risk sector becomes a possibility. The estimated market loss is currently $4b – $6b.
The total economic loss of the disaster has been put at around $35b so far although that is expected to rise as time allows for more business losses to be exposed. We’re also not sure if that includes the costs BP faces to try to cap the well and stem the oil leak.
So while Deepwater Horizon may not be a big enough event to turn the insurance or reinsurance market on its own, combine it with an active and deadly hurricane season and the P&C industry could see rates rising. Hiscox CEO Bronek Masojada was quoted yesterday as saying that a $30b hurricane event was required to increase insurance prices.
So there’s no sign of the soft market ending any time soon (major hurricane aside) but the clouds may be clearing slightly as losses this year are beginning to mount and may at least slow the slide in prices. Interestingly a report from Willis, the global insurance brokers, suggests that the power sector may already be experiencing softening.