Insurance as the Stakes Get HigherWed, 01/18/2017 - 15:29
Q: How is Aon changing its views and practices to deal with the complex environment stemming from the market’s opening?
A: The Energy Reform is undoubtedly a major shift that totally modifies the way energy companies do business in Mexico. This situation is further impacted by the need to comply with local regulations. Additionally, as technology advances and allows access to more remote and geographically complex locations, the investments required and risk exposure increase exponentially. The shift from shallow to deepwater exploration and drilling alone has extended exploration and production periods to eight to 10 years in length. And as we know, the industry is relying on deepwater exploration to boost production in the long term.
Given these major changes, the industry requires expert advisers not only for the new global players but for many other contractors that previously worked for PEMEX and that now have the opportunity to operate oil or gas fields and grow their business significantly.
While our customers benefit from being represented by the largest and most focused broker in the energy industry, both in Mexico and globally, the industry’s evolution in Mexico requires global experience with local service and capabilities. Anticipating these changes in the industry for many years, Aon has been working on strengthening our local capabilities and services. We have been working to provide a more focused and accurate approach to the evolving needs of energy companies, new industry regulations and stricter environmental and legal repercussions, among others. In addition to ensuring the continuous preparation, education and updating of our local Energy Practice teams, we have also partnered with specialized and leading firms to complement our capabilities and provide specialized advice on legal matters or to provide automatic underwriting capabilities.
Q: How does a company like Aon insert its services into a market that is not very familiar with reinsurance?
A: Mexico has always had an important energy industry with specific and varied reinsurance requirements. Although only PEMEX owned and operated oil and gas projects, it has always issued subcontracts on behalf of Mexican and foreign companies for different services. Thus, the Mexican reinsurance market grew to respond to the also expanding oil and gas market’s needs. Aon Mexico’s expertise and capabilities increased accordingly, both in insurance and reinsurance consulting services. We are reinsurance brokers and advisers for offshore oil platforms, drilling contractors, storage tanks, well control contractors and major integrated companies, whether upstream, midstream and downstream.
Q: What challenges does the development of a Mexican deepwater industry present to insurance companies?
A: The development of a deepwater industry is definitely a major challenge for the Mexican insurance market, considering that the Mexican side of the Gulf is mainly an unexplored area. The initial factors that will impact insurers and reinsurers will be the high exploration costs this will involve and the length of the projects. The high and long-term exposure will increase the uncertainty for potential Mexican carriers to underwrite the risks and provide coverage. On the other hand, the global reinsurance market’s soft trend with no obvious signs of an upturn in prices will counteract the local market’s position. The main challenge will then be to achieve price stability for insurance policies as the deepwater industry evolves from exploration to production.
Aon’s local and global experience in the energy industry will allow us to foster and lead the approach to new requirements and challenges. By working with the largest exploration and drilling companies in the world as well as with the top global carriers (reinsurers and underwriters), we have access to firsthand information on deepwater, such as updated data, lessons learned, best practices and problems encountered. We can secure the best options for our clients, keep them updated with information about their industry and approach the market strategically with mutually agreed goals.