Posted Aug 29, 2016

The detailed paper “Pipeline Insurance – Technical Aspects of Underwriting And Claims” shows that a good pipeline leak detection system and a good leak response plan can reduce insurance costs. Authors Richard Radevsky and Doug Scott provide insight on a world of pipeline insurance that often appears mysterious to the owner/operator of a pipeline. It seems that insurers do, after all, work within defined business parameters that make sense when explained. 

The relevant insurance coverages for pipelines are construction, property damage, business interruption, and liability. Among these, liability insurance is probably the most important. Pipeline leaks are not unusual, many are small-scale and the insurance costs negligible. However, cases of significant spills from large leaks or full-bore ruptures of pipelines have become more frequent and are causing significant pollution, fires or explosions with serious damage and casualties.

Insurance, underwriters ask two key questions when considering whether to cover pipelines:

  • How big a spill?
  • How often could it happen?
  • The factors on which the insurance underwriter bases his judgment include:
  • The age and type of pipeline and its location
  • Exposure to perils
  • Topographical and meteorological conditions to which the pipeline is exposed 
  • The way the pipeline is managed by the owner/operator 
  • The product(s) that the pipeline transports
  • The size of possible loss

What influences the cost and terms of insurance coverage? 

Besides the statistics of the pipeline - how long it is, how large it is, what it carries and the terrain through which it passes, an underwriter has to judge how well a pipeline company is likely to behave when faced with a potential disaster. This is where the pipeline owners can look for cost savings on the insurance bill because the underwriter knows that a good performance will greatly reduce the consequence and the pay-out. The underwriter will look at the risk management, loss avoidance, and disaster mitigation philosophies of the pipeline operators. How seriously are such subjects taken within the insured company? The pipeline operator must address the relevant hazards in a systematic way. Underwriters expect systems in place to detect leaks quickly and want to see that staff has been trained to recognize the early signs of a problem and to take the correct actions to obtain the best outcome. This is why a good leak detection program and an effective response plan should reduce the insurance premium.

Radevsky R, Scott D, (2004, June 2 -4): Pipeline insurance – technical aspects of underwriting and claims Paper presented at Conference on Terrain and Geohazard Challenges Facing Onshore Oil and Gas Pipelines: Published by Institution of Civil Engineers London

By: Atmos International
Date: 11 October 2019