Transactional Liability

In respect of providing Warranty and Indemnity insurance (or other transactional related insurances), the energy industry is diverse, and appetite and cost vary significantly across its many subsectors.

Traditional energy industries, particularly exploration, extraction and refining are sectors where appetite is declining and consequently rates are increasing. Additionally, these sectors may be impacted by geography. While some activities may be insurable, operating in certain jurisdictions—particularly those with political instability, regulatory uncertainty, or heightened environmental and social risks—can significantly impact coverage availability. With certain countries posing greater restrictions than the underlying activity itself.

The renewable subsector is largely seen as low risk, however, to obtain best coverage, clients should be aware of due diligence requirements to obtain coverage for the more significant risks.

Exploration, extraction and refining activities are often subject to higher scrutiny due to their exposure to environmental risks, regulatory compliance issues, and political risks. In contrast, renewables and energy transition projects, are viewed more favourably due to their alignment with sustainability goals and lower environmental impact. However, appetite for emerging energy technologies remains selective, with insurers focusing on proven solutions and stable regulatory environments.

Upstream (Exploration, Drilling, Extraction)

Although insurer appetite to underwrite risks that operate in this subsector is on the decline, most insurers remain willing to offer capacity, however some carriers limit their exposure, or only offer excess layer coverage.

Organisations who are operating extraction activities can prove harder to insure and will attract higher premium levels. Extraction activities are also subject to more underwriting scrutiny, and the geography within which they operate can be a major barrier to securing cover.

There are several common areas of low insurer appetite, restricting cover for Upstream energy companies.

High-risk jurisdictions (e.g., sanctioned countries, politically unstable regions)
Oil sands and Arctic drilling (ESG concerns)
Pollution and environmental contamination
Decommissioning liabilities and defective assets

Insurers are requesting increased disclosure as part of the underwriting process. To secure the best cover at a suitable price, organisations need to be aware that they may be asked to provide documentation to evidence:

Asset condition, geological accuracy, reserve quality
Decommissioning and restoration costs
Regulatory compliance and tax obligations
Risks associated with price fluctuations and hedging

For buyers who can evidence that risk within their business is well managed, we are seeing average rate increases between 1.5% - 3.5% within the current market.

Rate fluctuation will vary by region, and dependent on the complexity of the risk.

The renewable subsector is largely seen as low risk, however, to obtain best coverage, clients should be aware of due diligence requirements to obtain coverage for the more significant risks.

Downstream (Petrochemicals, Distribution)

In general, there is broad appetite in the market to insure Downstream energy risks within the retail and distribution space. However, it should be noted that this appetite does not extend to refining operations. Appetite to insure these activities are more akin to the insurer appetite seen within the Upstream subsector.

Common areas of low insurer appetite that we are seeing within the market include:

Pollution and contamination risks
High-risk jurisdictions (e.g., Russia, Ukraine, sanctioned countries)
Product liability and stock valuation concerns

Areas of focus for insurers include:

Asset condition and regulatory compliance
Political and civil risks (e.g., terrorism, industrial action)
ABC/AML compliance in high-risk areas

Within the Downstream subsectors, dependent on region operations are based in and the complexity of risk exposures, we are seeing average rate increases of 1% - 2.2% within the current market.

Midstream (Storage, Transportation, Processing)

Within this subsector of the Energy & Power industry, there is good appetite amongst insurers to underwrite these risks, subject to the specific requirements of the insured. As with other areas of the industry, geography will impact insurers willingness to provide cover, with high-risk territories finding it harder to generate insurer interest.

Common areas of low insurer appetite that we are seeing in the market include:

Pollution liabilities and sometimes condition of assets (subject to due diligence)
Political and civil risks in unstable regions
Limited appetite for high-risk transportation route

Areas of focus for insurers include:

Infrastructure condition and compliance with sector laws
Decommissioning liabilities and pipeline capacity
ABC/AML risks in high-risk jurisdictions

Within the Midstream subsector, dependent on region operations are based in and the quality of infrastructure in that location, we are seeing average rate increases of 1% - 2% in the current market.

Power Generation

Insurer appetite varies within the Power Generation subsector based on the type of operation that is being proposed. For instance, insurers have a low appetite to underwrite fossil fuel operations. Gas power stations can still be insurable, whereas coal operations are generally excluded by insurers.

Renewable-linked power generation operations are generally within insurer appetite.

Common areas of low insurer appetite that we are seeing in the market include:

Coal-based power generation and high-emission projects
Operations based in unregulated and politically unstable regions

Areas of focus for underwriters include:

Energy efficiency and environmental impact
Regulatory and compliance risks
Stability of government policies on tariffs and subsidies

For the power generation subsector, we are seeing average rate increases of 1% - 2.5%. The fuel type and jurisdiction of operation will affect premiums offered by insurers.

Renewables (Wind, Solar, Hydro, Biomass, Geothermal)

There is strong appetite amongst insurers to underwrite renewable energy risks, particularly for established technologies such as wind and solar. Other forms of renewal energy generation, such as Biomass, will be subject to additional scrutiny from insurers, but well managed risks are still very much within scope for the market.

Common areas of low insurer appetite that we are seeing in the market include:

Unproven or emerging renewable technologies
High-risk jurisdictions with regulatory instability

Areas of focus for underwriters include:

Asset quality and performance guarantees
Government incentives and tariff structures
Environmental and land-use considerations
Condition of assets (where built and subject to due diligence)

Renewable energy assets are generally an attractive risk for insurers, so while the average renewal sees rate increases, these are more tempered compared to other Energy & Power subsectors. We are currently seeing average rate increases of 0.5% - 1.5%.

Energy Transition (Hydrogen, Carbon Capture, EV Infrastructure, Biofuels)

Insurer appetite to underwrite risks within the Energy Transition space is increasing, particularly in relation to Hydrogen and Carbon Capture operations. Biofuel and Electric Vehicle (EV) infrastructure projects are also attractive growth areas for insurers.

Common areas of low insurer appetite that we are seeing in the market include:

Unregulated or highly experimental projects
Carbon-intensive processes with limited abatement strategies

Areas of focus for underwriters include:

Technology viability and scalability
Regulatory compliance and incentives
Environmental impact and carbon reduction potential

For Energy Transition projects we are seeing average rate increases within the current market of 1% - 2.5%.

Generally, there is strong appetite amongst insurers to underwrite renewable energy risks, particularly for established technologies such as wind and solar.

Getting the most from the market

The Warranty and Indemnity (W&I) insurance market has grown and is dynamic. With the increased number of insurers, appetite and specialisms have grown, there are now insurers willing to insure all the various facets of energy, from traditional to renewables and energy transition projects. The most critical factor for underwriters when analysing risk is not the underlying activity (Oil & Gas, power, renewables, energy transition) but instead, whether the asset/insured location has a stable legal and regulatory environment, geography is therefore the most significant impact to price and coverage.

To best position themselves and take advantage of these conditions, clients should be aware of the benefits that W&I can bring to their M&A process. W&I has become more of a deal facilitation tool, speeding up negotiations, allowing seller’s to more effectively use sale proceeds, and providing buyers with a more straightforward claim method. When done properly the results can be profound: faster transaction speed, limited execution risk and a claim procedure designed not to end up in expensive and lengthy litigation. Critically, a W&I claim does not damage your businesses reputation or relationships – creating a very different deal dynamic for purchasers.

How do investors have the best levels of coverage? Due diligence. Based upon our deep experience, we regularly review legal/finance/tax advisors scopes of work to ensure that they are sufficient and will deliver optimal coverage for the specific transaction.