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European Environmental Liability
Safety of offshore oil & gas activities
Harko Kremers, sr specialist insurance techniques
Safety of offshore oil & gas
activities
EU action on oil exploration and
extraction
Gaps and weaknesses regulatory framework at
EU level
– Environmental liability
– Mandatory insurance scheme for offshore oil
activities to be implemented via the ELD
Environmental liability
• Deepwater Horizon led the EC to assess whether the
current European regulatory frameworks are
adequate
– Offshore exploration is less covered by international
legislation
– Parts of ELD are interpreted as to govern offshore
oil & gas operations
• The commission will review possible need to close
gaps in applicable legislation
Mandatory insurance scheme for offshore oil
activities to be implemented via the ELD
• Insurance coverage in offshore sector is partial
• Insurance market does not provide sufficient cover
for damages of the magnitude seen in Deepwater
Horizon accident
• No international or European funds covering
environmental liability
(re)insurers position on safety of offshore
oil & gas activities
• System of ensuring sufficient financial solvency
• Voluntary system for the cover of environmental
liabilities
• Geographical scope should be worldwide
System of ensuring sufficient financial
solvency
Insurance industry cannot provide the sole solution in protecting against oil spills
– Immense financial capacity
– Premiums multiply the potential consequences of most significant accident
– European solvency law
Long-tail effects of an oil spill
– Consequences of the pollution may not be known for several years
– Insurers may not be in a financial position to cover the liability for such an extensive
amount of time
Joint and several liability under ELD
– Liability on all parties involved
– All are to contribute financially to the remediation
– If cover is given to some or all of them, the actual loss could be substantially higher than
anticipated
Companies in the oil sector should be free to compound the required solvency
guarantee alongside the range of options available for covering potential
environmental liabilities
Voluntary system for the cover of
environmental liabilities
Insurance industry can play important role in ensuring operations are solvent for
potential liabilities
– Financial security through insurance products designed for environmental liability,
particularly losses falling under ELD
– Free and voluntary markets enhance suitable cover for environmental liability risks
– Voluntary system leads to mature and stable environmental liability insurance market in
the long term
Each company should be able to choose how to protect itself against environmental
liabilities
This remains within the spirit of the “polluter-pays” principle emphasised in the ELD
A voluntary financial security scheme is the optimal way to ensure sustainable
insurance products to meet the MS environmental liability needs
Voluntary system important for risks
posed by offshore oil activities
Companies in the oil sector should be free to decide either to go self-insured
or to buy insurance
– Damages incurred in the Deepwater Horizon incident far exceed the available
capacity of the insurance market:
• Damages amount to approx. $ 40bn in total, including environmental liability
• Relative insurance market capacity approx. $ 1.5bn
– Mandatory insurance schemes are restrictive in nature
• Difficult to match demanded cover
• Difficult to adept cover to complex risk profiles (e.g. an oil company)
Oil companies are the most specialised experts within their sector, thus in the
best position to assess their own appetite for insurance cover
Many oil companies have much more financial capacity than insurers, thus
an own ability to cover these risk
Geographical scope should be worldwide
International liability regimes are already in place
– Oil spills easily surpass the borders of the EU
– Several national & international liability regimes are in place which apply to losses by oil
companies
– More likely to change existing conventions before changing the ELD
– EU regulation will not stop severe marine pollution caused by oil exploration in nearby
third countries
Offshore oil sector is not covered by traditional ELD insurers
– Main focus of ELD is onshore activities, thus EU-wide insurance markets developed
environmental impairment liability policies accordingly
– Markets are by no means mature enough to provide cover for risks of the oil sector
activities
– Oil sector liabilities are a highly specialised market
Enhancement of insurability will help the whole system
– Best practices in the oil industry can enhance insurability of risks and improve
prevention of environmental damage
– Focus on risk management is the best means of reducing environmental damage risks
– Cooperation amongst operating oil companies can promote safer offshore oil operations
Conclusion
Insurance industry strongly:
– Advices against the introduction of a mandatory
insurance scheme for the environmental liability
risks posed by the offshore oil sector
– Recommends to keep any liability and financial
security scheme for offshore oil activities within
the scope of existing multinational conventions
Harko Kremers
Senior specialist insurance techniques
Verenigde Assurantiebedrijven Nederland N.V.
Reinsurance pools department:
* Dutch Nuclear Insurance Pool
* Dutch Terrorism Risk Reinsurance Company
* Dutch Environmental Impairment Insurance Pool
Tel.nr. +31 (0)70 319 53 34
Faxnr. +31 (0)70 319 53 39
E-mail [email protected]
European Environmental Liability
Safety of offshore oil & gas activities
Harko Kremers, sr specialist insurance techniques