Energy

How soft market conditions are driving innovation in energy insurance

20 May 2025

Soft market conditions are currently delivering savings to many clients in the energy sector. When presented with unexpected budget headroom, risk managers have a choice; to book premium savings on a like/like coverage basis, or take the opportunity to provide improved cover for the same allotted spend.

In the past, expanded coverage may have taken the form of tweaks to traditional coverages, such as lowering retentions, or including additional heads of cover such as BI/LOPI. The growth and innovation of the parametric market has created new opportunities for expanded cover that may have been previously unavailable to risk managers. The market has proven to be particularly innovative regarding parametric insurance, as products can be designed around a wide range of perils, and are able to provide payment for non-damage incidents.

Parametric insurances as complementary cover

Parametric coverages will often be used to complement traditional insurances, rather than replace them. For example, a parametric policy could carve out an expensive element of coverage, and place this lower cost stand-alone to achieve an overall reduction, or be used to buy-down existing deductibles for specific perils to meet client risk appetite. It is important to stress that premiums involved in parametric deals are approachable for risk managers, with minimum premiums starting at USD100,000. As the parametric market has grown, these products have become an increasingly popular tool deployed by risk managers.

Where parametric coverages can provide innovative solutions

Risks previously deemed too difficult or complex to insure: a parametric policy can allow a client to find an insurance solution for a risk they may previously have been forced to self-fund on the balance sheet. Such examples would include lack of wind for wind farms, or a lack of river height for those clients who rely on riverways to transport crude and products.
To correct mispriced exposures: a parametric policy is a technically priced product based upon modelled probability, and represents a dispassionate assessment of likely exposure. Where certain elements of coverage might currently evoke an emotional response from the traditional insurance market, these ‘mispriced’ coverages may be better catered for within the parametric market.
To overcome market aggregations: certain dependency assets can present a headache for insurers, particularly gathering stations and other system bottlenecks within energy infrastructure. Contingent BI for windstorm is a particularly expensive cover, and this may be better catered for through a parametric policy focused upon the dependency premises.
No physical damage required post-loss event: the proceeds of a parametric policy can be spent to cover any form of financial loss, including loss of attraction, loss of productivity, extra expenses, and loss of revenue. There does not need to be physical damage. An example of such exposure might be loss as a result of shutting down offshore assets ahead of windstorm, but where damage was not ultimately sustained.
Rapid response needed following natural catastrophe: parametric insurance can be a great tool to build resiliency. The rapid payment profile allows for vital funds to flow swiftly to clients impacted by a predefined event.

Sectors that benefit from parametric solutions

Renewable energy: parametric insurance can mitigate the risks associated with solar, wind, and hydroelectric projects, such as physical damage from extreme hurricanes, hail or other weather-related events. Conversely, these products can also be designed for non-damage loss resulting from an extreme lack of wind or rain. The ability to design structures for a range of exposures makes parametrics particularly valuable for renewable energy initiatives across the globe.
Oil and gas: Miller has been involved in many use cases, from a Gulf of Mexico windstorm, to providing earthquake policies to cover 800 miles of pipeline in Alaska.

Case Study - Delivering premium savings for windstorm perils with parametric coverage

An existing energy client of Miller approached our Parametric Solutions team, looking to purchase nonstandard hurricane coverage. Knowing their asset could withstand CAT 3 hurricanes, the client wanted an insurance policy that paid out once wind speeds exceeded a CAT 3 storm.

The client had an asset that was under construction, however construction was put on hold, making it difficult for the construction markets to provide coverage for this niche risk. Coverage placement including windstorm was proving challenging, as the hurricane season was fast approaching, and many markets had reduced capacity to deploy.

Given the timeframe, it was decided to carve-out the windstorm coverage as a parametric layer to allow the indemnity markets to focus on the risk (excluding hurricane). The Onshore Energy team worked on the traditional placement, excluding windstorm cover, whilst the Parametric Solutions team worked in parallel to negotiate a parametric limit from their carriers.

The result was coverage for the client on a combined basis, that was not commercially available in the traditional insurance market alone.

Why choose Miller for your parametric solutions?

Parametric Solutions

Parametric insurance is rapidly growing due to advances in technology and data capabilities, and Miller is leading the way in designing and securing parametric solutions for our clients.

As one of the only dedicated parametric broking team in the London market, we deliver innovative and tailored coverage solutions across all sectors and geographies. We bring extensive knowledge of parametric products and strong relationships with all key parametric markets.

By accessing specialist London parametric markets, Miller can ease the placement of both renewal and new business by incorporating a standalone parametric policy. Miller acts as your entry point to London’s specialised market for insurance against parametric perils, including Lloyd’s.

To create an insurance program that caters to your firm’s precise risk profile, we will work with underwriters with decades of experience who specialise in security risk for businesses such as yours.

Parametric Solutions