Driven by a delicate balance between profitability concerns and the pursuit of market share, the energy insurance market is continuing to soften with capacity at an all-time high, according to the Energy Market Review published today by Willis, a WTW business (NASDAQ:WTW).
Rate reductions are ramping up in the downstream market following a benign loss record in 2024, with markets quickly forgetting the many years of poor performance that preceded it. There has already been significant loss activity in Q1 2025 with $1.5 billion of potential losses, more than the entire 2024 year, which could impact the direction and pace of further softening in the year ahead. As the market continues to shift, downstream energy companies can leverage soft conditions to manage volatility and those more focused on rate optimisation can stand to benefit from heightened insurer competition for top-tier business.
In the upstream market, growth of around 5% in capacity has been driven by a quiet year for losses and continues to fuel a soft market. Insurers are under continued pressure to grow their market share, putting pressure on signings even when core business is placed at a significant reduction and more underwriters are willing to take on leadership roles, further driving pricing down. Insurers are writing so much construction business that many have already filled their 2025 budget, despite this having been the worst performing part of the portfolio historically, suffering from a particularly poor loss record.
While international liability markets have been in profit for three years out of ten, with the last two reporting consecutive years of profitability, U.S. casualty remains the one anomaly in an otherwise softening market. Social inflation remains stubbornly on an upward trend, with the increasing size and scale of settlements, carriers in all segments are increasing their scrutiny on limits deployed and premium charged. The North American energy casualty market is facing varying conditions across different sectors. While there’s a stable outlook for primary liability, challenges persist in the oilfield services segment with higher loss frequency and severity, and no change in market dynamics forecast in 2025.
Rupert Mackenzie, Global Head of Natural Resources at Willis, said: “With energy generating significant premium volumes, the sector remains highly attractive to capital providers, fostering increased competition among insurers. As underwriting teams sharpen their focus on risk selection, we are seeing a clear “flight to quality”, where the most desirable risks secure the best terms. However, profitability remains a critical challenge for insurers.”
The report also highlights the growing role of energy storage in advancing the clean energy transition. As electrification gains momentum, the need for reliable and efficient energy storage has become a critical focus for both energy companies and insurers. While these innovations enhance grid stability and resilience, they also introduce new risks, including supply chain disruptions and safety concerns.
Marie Reiter, Global Head of Broking Strategy, Natural Resources, Willis added: “2025 is a pivotal year for the energy transition. Energy companies that proactively invest in risk management strategies and collaborate with insurers to develop tailored coverage solutions will build the necessary risk resilience to balance short-term investment in fossil fuels with longer-term decarbonization plans.”