Asset consolidation, integration fuel business interruption risks for energy sector, says Marsh report

Marsh's report – Rethinking Business Interruption Risks in an Optimised Oil and Gas Industry – will be released at the firm's biennial Energy Industry Conference to be held in Dubai during 6-8 March 2018.

Operator complexity will continue to grow, as the energy and power industry develops new ways to remain competitive. (Image for illustration only)
Operator complexity will continue to grow, as the energy and power industry develops new ways to remain competitive. (Image for illustration only)

According to Marsh, global energy and power firms could experience more business interruption (BI) losses in the next decade as a result of asset consolidation and greater integration among multiple affiliates.

Marsh’s report – Rethinking Business Interruption Risks in an Optimised Oil and Gas Industry – will be released at the firm’s biennial Energy Industry Conference to be held in Dubai during 6-8 March 2018.

The report looks at how supply chain integration and consolidation – such as sharing central utilities, support, and logistics facilities, and production clustering to rationalise less profitable or redundant operating assets – are becoming more prevalent in the global energy sector, as firms strive to save costs, reduce headcount, and boost their competitiveness.

However, according to Marsh, this strategy of integration and consolidation is creating heightened BI exposures, as supply chains become more interdependent and operators become less resilient to respond and mitigate unplanned losses.

Andrew George, chairman, Global Energy & Power Practice, Marsh, said: “While the integration and consolidation of existing assets and people can increase supply chain value, it may also simultaneously remove operational resilience.

“Some parts of the supply chain may become more dependent on each other or become over-stretched, back-ups within the system may be removed, and new single critical failure points can arise. Furthermore, each business is less flexible, and therefore less likely to be able to respond quickly to market opportunities and strategy changes.”

BI risks for energy and power firms are under increasing scrutiny from insurers. According to Marsh’s report, some recent BI losses have exceeded property damage or machinery breakdown losses in a significant proportion of recent insurance claims.

George continued: “Marsh expects operator complexity to continue to grow, as the energy and power industry develops new ways to remain competitive. In this challenging environment, it is vital that firms develop their understanding of BI risks and increase their supply chain resilience, in order to protect their assets and maximise their profitability.”

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