Energy Risk Engineering Insights

Let’s discuss “quotashare” insurance programs for large technical risks such as energy facilities.

“Quotashare” insurance programs, also known as quota share arrangements, are a type of insurance agreement commonly used for large technical risks such as energy facilities. In a quota share arrangement, multiple insurers come together to share the risks and premiums associated with an insurance policy.

Here’s how a quotashare insurance program typically works:

1. Risk Assessment: Before issuing the policy, the insurers assess the risk associated with the energy facility. They evaluate factors such as the facility’s location, construction, safety measures, operational procedures, and potential exposure to hazards.
2. Quotashare Agreement: The insurers negotiate and enter into a quotashare agreement, which determines the percentage of risk each insurer will assume. For example, if there are four insurers involved and they agree to a 25% quotashare arrangement, each insurer will take on 25% of the risk and collect 25% of the premiums.
3. Premium Calculation: The total premium for the insurance policy is calculated based on the overall risk and the agreed-upon quotashare percentages. Each insurer contributes a portion of the premium corresponding to their share of the risk.
4. Claims Handling: In the event of a loss or claim, the quotashare arrangement also determines how the claims will be handled. The insurers typically share the responsibility for investigating and processing claims based on their quotashare percentages.

Benefits of Quotashare Insurance Programs:

• Risk Sharing: Quotashare arrangements allow insurers to spread the risk among multiple parties, reducing the exposure of any single insurer to catastrophic losses.
• Capacity: By pooling resources, quotashare programs enable insurers to underwrite larger insurance policies for complex and high-value risks that may exceed the capacity of a single insurer.
• Expertise: Insurers participating in quotashare programs often bring their specialized knowledge and experience in handling specific technical risks, which can be advantageous when dealing with complex energy facilities.

Challenges and Considerations:

• Coordination: Managing a quotashare arrangement requires effective coordination and communication among the insurers involved to ensure consistent underwriting, policy terms, and claims handling.
• Profitability: Quotashare programs may face challenges in achieving profitability due to the need to split premiums and potential disagreements over risk assessments, policy terms, and claims settlements.
• Regulatory Compliance: Insurers must comply with regulatory requirements in the jurisdictions where the energy facilities are located, which can add complexity to the quotashare arrangement.

It’s important to note that the specifics of quotashare insurance programs may vary depending on the agreements and terms negotiated between the participating insurers and the insured party.