Lloyd's Market Association Bulletin

LMA22-009-JHF | 04 March 2022

Downstream Energy Change or Cessation of Use Questionnaire

The LMA Onshore Energy Business Panel have identified several factors in the oil, gas and petrochemical industry which have impacted the decisions taken by (Re)Insureds in the event of a major loss, specifically decisions around whether and how to rebuild damaged or destroyed assets. These factors include:

  1. A greater focus on environmental issues.
  2. The desire of larger groups to shed smaller and less competitive assets.
  3. The changes to gasoline and diesel consumption.
  4. Increasing regulatory oversight on environmental impact
  5. Ageing assets.

Current policies, which are designed for reinstatement and indemnification purposes, may not be the most appropriate product , particularly if the (Re)Insured’s asset is likely to permanently shut or has a nominal value. In such circumstances, further consideration of a product which is specifically designed for a (Re)Insured’s need is advised, including specific provisions for business interruption payments in the event of (a) non-replacement or (b) extended repairs caused by replacement with alternative technology or occupancy.

The provision of such products can only be achieved with open dialogue between the (Re)Insured and (Re)Insurers. It is sensible for this dialogue to take place well before inception.

Categories of Facility at Risk

In order to understand the coverage required, underwriters are encouraged to identify assets that:

  1. will be partially or wholly replaced with alternative technology, or
  2. have low commercial value against high reinstatement values, or
  3. have market economics that are no longer viable, or
  4. may not be reinstated due to environmental, permitting, or economic constraints ,or
  5. are ageing, or
  6. have a known closure date.

The below is designed to support a dialogue between (Re)Insureds and their (Re)Insurers regarding assets being (Re)Insured. It should assist (Re)Insurers in understanding the assets being (Re)Insured and the likely actions that will be taken in the event of a loss.

Any issues identified within this questionnaire may not necessarily become a barrier to provision of coverage (which is a matter for individual (Re)Insurers to consider) but can form the basis for discussion between the (Re)Insured and (Re)Insurers.

This questionnaire is not intended to replace any other information which may be provided within the (Re)Insured’s submission.

Download the Questionnaire here.

Josh Hutson-Flynn
Executive, Technical Underwriting