Health Safety & Environment:
Offshore Structures and Activities Insurance

Companies and individuals manage risk by developing technology and procedures to minimize it, and then by purchasing insurance to protect them against losses. So it has been with the expansion into the offshore frontier. Without insurance offshore opportunities would have been developed at a much slower pace―some prospects may never have been drilled. 

But underwriters must have some idea of risk before they can reasonably write insurance coverage. Their lack of experience in the risks associated with the unusual fleet of exploration, drilling, and production units that took to sea, and the gradual learning curve by the offshore unit designers on air gap etc. resulted in substantial losses, the first from Hurricane Betsy in 1965. Then, following losses like the Bruyard, the Sea Gem, the Maverick and the Bluewater I, a moratorium on writing rig insurance was declared.  

Determining risks on mobile drilling units within this contracted market was difficult and time consuming. Moreover, it was hard to see how capacity might grow to cover the higher values associated with the developing breed of jackup and semi-submersible rigs. The market also was faced with requests to provide coverage on higher values for fixed offshore platforms in the North Sea.   

A milestone event for making rig insurance available was the formation of the London Master Drilling Rig Contract, an agreement to insure rigs on specified terms, rates and conditions that provided a larger capacity (initially for values up to US $10 million) than would otherwise have been available. The idea was originally conceived by several insurance firms and was established as a line slip facility available to the five leading brokers engaged in energy business. The purpose of the contract was to bind the market behind the agreement of six leading insurers to one declaration, these six being considered specialists in the energy business. By this means it was possible to build capacity to the maximum amount available in the market at the time. Coverage was thus available for physical damage exposures of offshore drilling units during construction, movements and operating. Key underwriters learned the offshore business in order to write risks for their clients on behalf of their syndicates and companies, and key brokers brought those insured's to the table. The London Master Energy Line Slip (which became the name of the facility) survived until June 1992. At its zenith it offered a capacity in excess of US $1 billion any one structure. 

Recognizing the pioneering efforts of the following individuals and companies who contributed to the development of this technology: 

London Underwriters: Henry Chester, Gale Coles, David Hill, Harold Hill and John Oliver.  London Brokers: Mike Adams, George Stewart and Peter Wright. American Brokers: Joseph Blades, Tom Carey, L.K. Giffin, Russell Sammis and George Wells.