Oil sands projects won’t be contributing to the estimated 50,000 commercial insurance claims as a result of the Fort McMurray fires, as they weren’t shut down long enough to trigger business interruptions in most cases, says Hart Brown, senior vice president of Organizational Resilience at
HUB International.
“When we take a look at how those policies are structured, the outage has to be over a certain duration before actual coverage is triggered. And for many companies that are small or medium-sized, that time frame might be 48 to 72 hours,” he says.
“In the oil industry those time frames are significantly longer for a number of reasons. From a pricing standpoint, the longer you make that timeframe the cheaper the potential premiums are going to be because the companies are taking more of that risk on, rather than transferring it. That’s typical within the oil industry space; they may be one month or longer before those coverages actually get triggered.”
Many of the oil sands projects in the region shuttered to provide emergency shelter for evacuated Fort McMurray residents. It is estimated 30 million barrels of oil, worth up to $1.6 billion were lost while production was halted. However, most sites didn’t incur any physical damage.
Brown adds that any potential claims also take into account the rebound affect – a surge in sales once the oil sands project is back up and running which would not have occurred otherwise. As well, the fact that oil is currently priced low is a silver lining, mitigating potential losses for the oil sands projects.
“With the price of oil being somewhat low at this time, those losses they incurred during that time frame are not as high as the losses if the oil was priced much higher,” he says. “We might see a different philosophy based on that, due to the international dynamics price of oil being low during the time of those outages makes it easier for companies to overcome that timeframe of disruption.”
According to Brown, the inability to make a claim isn’t a shock to most of the projects, as they forecasted accurately how they would be impacted from the offset. “Most of them, pretty early on in the process, were indicating at this point they were not anticipating major losses, although that could have changed,” he says. “The factors that went into the early notifications were on the anticipation for how long they were going to be out would be relatively short and within that timeframe that they had taken out.”
And, while the Fort McMurray fire has been pegged as the costliest natural insurance event in Canada’s history at $3.58 billion, Hart adds that the ability to cope with such events is improving. “The insurance industry has taken a mid-year look at what has occurred in the first part of this year, and taking into account the fires as well. On a global basis, we’re trending higher and the fires were one of the major impacting events to that, but one of the very interesting things from the recent information that was put out is while financially the impacts are higher than expected, the loss of life is much subdued from what we’ve seen year to year,” he says.
“From an overall management perspective is improving saving lives, and that’s certainly a high point in this.”
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