Property coverage on physical energy assets

[energy123]

General question to any P/C actuaries:

I work for a merchant bank, and I'm trying to develop a model to price property insurance on a particular asset the bank in considering for investment purposes...specifically, a natural gas storage facility. The purpose of the insurance is to cover the risk of (1) loss of inventory in the facility and (2) loss of use of the facilility (I guess this risk would require a form of business income coverage).

I realize this is probably a very thin market, and that a pricing model will be of the frequency/severity type. So my questions are these:

=> Can you recommend any insurers that write this type of coverage?
=> Are there any well-written papers that exist that address pricing type 4 P/C risks (unkwown payment timing and unknown severity)?

Thanks to anyone kind enough to respond!

[oirg]

Check out this website.

http://insurance.cch.com/Rupps/industrial-risk-insurers.htm

[Paddyboy1]

Its not a very thin market, this market is large enough to be sub-segmented into two specialist classes of insurance, onshore energy and offshore energy. I would bet that global premiums are on the order of $10 billion give or take $5 billion. The cover for the loss of inventory and loss of use is sold on a combined basis. Some loss of use coverage is sold under the class 'engineering insurance' also. I would say most of the big players probably write this, a number of Lloyds syndicates, big global companies Berkshire Hathaway, AIG, Ace, XL, and also big Bermuda reinsurers.

The pricing for this coverage can be sophisticated (involving models that estimate weather losses based on geographic location) but my belief (this is out of my area of expertise) is that most of the pricing is not very scientific. Onshore energy in particular, as a class of insurance is subject to very large catastrophic losses which requires multiple insurers on a single coverage and in the insurance industry this tends to lead to market-based as opposed to technical pricing.

A good place to start is with the risk manager of the target company. He will likely have to put together a submission anually to their insurers describing their old claims history, exposure, their historical premiums, etc.