Carriers Urged to complete Cyber Exclusion Clause for Energy Firms

Continuing uncertainty surrounding the application of cyber-exclusion clauses is eroding the value of insurance and causing mounting concern among global energy firms, in line with Marsh’s latest Energy Market Monitor.

The inclusion of so-called “CL380 clauses,” which can be currently imposed across a broad range of energy policies, means that insurers may deny energy firms’ claims for physical loss or damage stemming from cyber-related incidents, whether they're accidental or malicious.

Insurance capacity for energy firms has remained largely buoyant in 2013 a result of continued absence of a market-changing event and the coming of new entrants fueling competition.

“The global energy sector has not experienced physical damage to facilities or disruption to supply that was attributed to a cyber-related event, that's testament to its aggressive approach to risk management,” says Andrew George, chairman of Marsh’s Global Energy Practice, but “the current situation is clearly unsustainable,” he adds, in regards to the presence of “CL380 clauses.”

“A cyber-related incident could potentially have catastrophic consequences,” he adds. “Insurers must deliver innovative products that offer coverage which responds to the changing risk profile of the energy industryâ€"not only to stay relevant but to help their clients stay successful.”

Marsh’s Energy Market Monitor reports that beyond cyber terrorism threats, the key risks facing the energy sector today are changes inside the geopolitical environment, the improvement of recent technologies and the sheer scale of the new projects.

Larger projects are putting pressure on the upstream construction market. They're few and far between, but the largest offshore projects are challenging market capacity. The market is facing a dilemma: There's quite a lot of capacity for plenty risks, but not enough for loads of.

“Many pundits expect recent losses to bite hard,” and there is talk, particularly contained in the downstream energy market, “that we're one or two losses removed from seeing carriers withdraw from the field,” the report notes, adding that Marsh disagrees with this assessment.

Over the last 12 years, the energy market has shown incredible resilience and overall strong underwriting disciplineâ€"and Marsh expects that strength to continue. While prices in various segments may be going up or down, the deviation factor has shrunk, the report says.