Oil Insurance And The Energy Industry
Michalis 'BIG Mike' Kotzakolios


Defined Tag: Oil Insurance.

What is oil insurance and how does it relate to the energy industry? Quite simply, oil insurance is no different than any other form of insurance. It is no different than car insurance, medical insurance, or home owner insurance. Companies purchase oil insurance so they can hedge against unpredictable loss. In fact, many professionals do similar things. Doctors will often purchase malpractice insurance and law firms will purchase errors and omissions insurance. For oil companies, purchasing insurance to cover potential disasters is an absolute must.

One aspect of oil company insurance is that it protects the oil producer against equipment malfunctions and losses. This type of insurance for oil producers works much like car insurance when the vehicle is damaged or destroyed. Oil production is a field requiring millions or even billions of dollars of equipment to operate. Oil company insurance protects oil companies against equipment loss, theft, vandalism, catastrophes, and possibly terrorism. Oil companies buy this type of insurance to protect their massive investments.

Oil producers cannot operate without employees, so oil company insurance protects them as well. This type of oil coverage is much like traditional health insurance plans. Workers are covered for injuries and illnesses. An insurance policy for oil workers might include other things, such as co-payments, co-insurance, deductibles, and various out of pocket expenses, which attempt to reduce consumption of medical care. These policies are likely to provide worker compensation insurance, as well as unemployment insurance in case of job loss. However, the actual equipment wont do much by itself if there are no workers to operate it.

Oil company insurance also protects against environmental damages. One of the most notorious oil spill accidents was the spill from the Exxon Valdez oil tanker in Prince William Sound, Alaska in 1989. The crude oil spill has been estimated to be as high as 11 to 30 million gallons. It is very likely that the company's oil insuring plan helped pay for to repair the damaged ship and the resulting cleanup of the oil spill.

Not surprisingly, just as there are insurance companies that specialize in underwriting doctors, there are also niche insurers who specialize in insuring oil companies (oil insurance companies). You can imagine how massive their premiums are; however, every single oil company, when faced with the option of insurance or risk, will choose insurance, even though the premium may look high.