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Surviving the Cycle: Dedicated Teams Help Energy Bounce Back

As the industry begins its slow recovery, both insurers and energy producers will benefit from partnerships proven to stand the tests of time and adversity.
By: | July 27, 2017 • 5 min read

The rapid rise and steep fall of oil has taken the industry on a wild ride.

The drilling boom that began around 2010 sparked a lucrative period for the energy industry, but ultimately saturated the market with surplus oil. In 2015, prices bottomed out almost overnight, with the going rate for a barrel of oil plummeting into the low $20s. Smaller energy producers, or those newer to the business with less efficient operations, suffered the most.

Many went bankrupt.

“These were companies that entered the market during the boom, relying heavily on private equity to start their businesses,” said Les Lappe, assistant vice president, national practice leader, Primary Energy Division, Starr Companies. “Lack of experience meant less efficient business models than those of incumbent players. When the industry contracted so quickly, the newer entrants couldn’t afford to keep going.”

Those left behind after the contraction were arguably the strongest and most stable operators in the energy sector — but even many of them were struggling.

“There was no growth. Many of our clients were shrinking drastically,” Lappe said.

This, of course, had implications for insurers as well. But just as the downturn tested the efficiency and stability of energy companies and culled the less-experienced, it likewise pushed out carriers without a dedicated, long-term plan for the energy sector.

As the industry begins its slow recovery, both insurers and energy producers will benefit from partnerships proven to stand the tests of time and adversity.

An Industry on the Rebound

The surplus is unlikely to last forever, and America’s demand for oil has not diminished. Especially amid reduced reliance on coal, oil and gas have the potential for further growth.

“Our need for oil has actually increased by about 3 percent every year,” said Gregory Cropp, CPCU, assistant vice president, national practice leader, Excess Energy Division, Starr Companies. “Worldwide surplus has affected the price, but the more oil we extract from the U.S. and produce here, the more secure the industry will be domestically.”

The oil and gas industry indeed began showing signs of life again early in 2017. The price per barrel has inched up into the $40s. “Utilization of rigs, currently settled around 45 to 50 percent, may reach 60 to 75 percent by the end of 2017 or beginning of 2018 — especially as the number of onshore drilling permits pick up under the current regulatory regime,” Cropp said.

And, as Cropp points out, not every segment of the oil industry was depressed by the falling price of oil. Refineries, for example, took advantage of the downtime to refurnish equipment and improve their risk profile.

“Some refineries actually grew significantly through this turnaround,” he said. “They took it as an opportunity to do necessary maintenance. Now that work will tail off, and the oil well contractors will begin to pick up activity.”

Concurrently, insurers are entering the market hoping to reap the benefits of the recovery.

“There are a lot of new entrants offering excess casualty, domestically and in Bermuda and London as well,” said Carmella Capitano, vice president, Energy Division, Starr Companies. “So, we’re seeing more capacity come back into the marketplace.”

Though the oil and gas sector has not yet fully recovered, insurers also have to be wary of risks introduced by a growing market. If the price of oil rises too high, it creates space for new, inexperienced energy producers to enter the market — producers that may take more risks and operate with less safety.

“When the price exceeds $100 per barrel, we see more opportunistic players coming into the industry, and they introduce risk,” Lappe said. “The contraction actually had benefits for the industry as a whole by eliminating some of the riskiest companies and elevating the safety standard overall. Now we’re seeing more of a stabilization. In our experience, $50 – $75 per barrel creates a very stable market both for the oil producers and insurers.”

To survive market cycles and mitigate risks associated with both booms and depressions, oil producers need an insurance partner with a long-term view and an arsenal of dedicated resources.

Insuring for the Long Haul

As the energy sector contracted, insurers also shrank or shifted their teams to adjust. That often meant laying off underwriters, and putting construction or manufacturing specialists on double-duty to handle the dwindling energy business. Some carriers pulled out of energy altogether.

Through the years of plummeting oil prices and a sharp contraction, Starr maintained a team of underwriters, loss control specialists, claims managers, auditors, and financial experts all 100 percent dedicated to the energy sector.

“We are one of the rare insurance companies with a fully dedicated team,” Capitano said. “Between underwriting and service, we have about 60 employees across the country solely focused on energy.”

Its commitment to the industry demonstrates the value that Starr places on building long-term relationships with clients. When insureds shrank, underwriters provided premium flexibility.

“We assisted our clients by reducing premiums on their policies, or shifting some risk exposure back to them, with the expectation that when the market strengthens, we will put the exposures back onto the policy,” Lappe said. “It boils down to treating each other fairly through the process, which goes a long way in building a lasting client relationship.”

Underwriters are empowered to make their own decisions and write “outside the box,” working with each client’s unique situation instead of strictly adhering to defined application parameters.

The account service teams reinforce underwriters’ client-focused approach.

Starr’s loss control consultants, each with 25 plus years of experience in energy, visit sites all over the country and provide recommendations to improve safety and operations. The insurer’s lead claims manager, a lawyer by training with 15 years in the energy business under his belt, “knows when to mediate, when to settle, and when to take a case to trial,” Cropp said.

“We also have an actuary and a credit manager we’ve worked closely with, which has allowed us to maintain a financially stable portfolio during the downturn,” Capitano added.

“What we provide is expertise, both in underwriting and service,” she said. “I could put our team against any competitor’s, and we’ll win because of our commitment to the sector. When energy bounces back, and even if it crashes again, we’ll be here for the long haul.”

To learn more, visit http://www.starrcompanies.com/insurance.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.




Starr Companies is a global commercial insurance and financial services organization that provides innovative risk management solutions.

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As risk manager for a cloud computing and software company, Laurie LeLack knows that the interconnected economy and cyber security remain top risks.
By: | December 14, 2017 • 4 min read

R&I: What was your first job?

One of my first jobs was actually at a local insurance agency when I was a high school student, before I had any idea I was going to get into insurance. After college, I was a claims analyst at Sunbeam.

R&I: How did you come to work in risk management?

I fell into it after college, where I studied international business. I had a stack of resumes, and Sunbeam came to Florida from Rhode Island, so I applied. I interviewed with the director of risk management and just stuck with it and worked my way up.

R&I: What is the risk management community doing right?

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Getting a holistic view of risk. Risk managers are understanding how to get all stakeholders together, so we understand how each risk is aligned. In my view, that’s the only way to properly protect and serve our organizations.

R&I: What could the risk management community do better?

We’ve come a long way, but we still have to continue breaking down silos at organizations. You also have to make sure you really understand your business model and your story so you can communicate that effectively to your broker or carrier. Without full understanding of your business, you can’t assess your exposures.

R&I: What was the best location and year for the RIMS conference and why?

Being on the East Coast, I like Philadelphia.

Laurie LeLack, Senior Director, Corporate Risk and Americas Real Estate, Citrix Systems Inc.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Organizations understanding their cyber risk exposures and how this line of insurance can best protect them. Five to ten years ago, people shrugged it off as something just for technologies companies. But you can really see the trend ticking up as a must-have. It was always something that was needed, but people came to their own defining moments as we got more involved in electronic content and social media globally. Cyber risk is inherent in the way we do business today.

R&I: What emerging commercial risk most concerns you?

The advent of security and contractual obligations. These are concerns as we all play a part in this big web of a global economy. There’s that downstream effect — who’s going to be best insulated at the end of the day should something transpire, and did we set the right expectations?

R&I: Is the contingent commission controversy overblown?

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I think so. At the end of the day, it’s all about the transparency you’re getting from the people you work with. I think some best practices in transparency came out of the situation, but we were working on a fee basis, so it wasn’t as much of an issue for us as it may have been for other companies.

R&I: Are you optimistic about the U.S. economy or pessimistic and why?

I’m cautiously optimistic. We seem to be stable in terms of growth, and I’m hoping that the efficiencies and the economies of scale we achieve through technology will benefit us. But I’m also worried about the impact that could have on the number of jobs globally.

R&I: Who is your mentor and why?

Robert O’Connor, my former director when I was first on-boarded at Sunbeam, gave me so many valuable tidbits. I’ll call him to this day if I have an idea I want to bounce off him. He’s a good source of comfort and guidance.

R&I: Of what accomplishment are you most proud?

I have two very empathetic, healthy and happy boys. Eleven and soon-to-be 14.

On the professional side, there were a lot of moments during my career at Citrix where we were running a very lean organization, so I had the opportunity to get involved in many different projects that I probably wouldn’t have had in other larger organizations.

R&I: What is your favorite book or movie?

My favorite movie is Raiders of the Lost Ark.

R&I: What’s the best restaurant you’ve ever eaten at?

A place in Santa Barbara called Bouchon.

R&I: What is the most unusual/interesting place you have ever visited?

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Caverns in Gatlinburg, Tennessee. They were interesting. It was cool to see these stalagmites and stalactites that have been growing for millions of years, and then just above ground there are homes from the 1950s.

R&I: What is the riskiest activity in which you’ve ever engaged?

Riding on the back of my husband’s Harley.

R&I: What about this work do you find the most fulfilling or rewarding?

I like educating people and helping them find their ‘aha’ moment when you highlight areas of risk they may not have thought about. It allows people to broaden their horizons a little bit when we talk about risk and try to explore it from a different angle. I try not to be the person who always says “No” because it’s too risky, but find solutions that everyone is comfortable with given a risk profile.

R&I: What do your friends and family think you do?

I tell my kids I protect people and property and sometimes the things you can’t feel or touch.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]