Negotiating Your Control of Well Insurance Policy: Strategies and Pitfalls – Part 2
/Negotiation Strategies
Once you have a comprehensive understanding of your COW policy, you’re better equipped to negotiate its terms alongside your broker.
Clearly communicate your risk profile: With your broker, you should clearly and concisely communicate your wells’ characteristics, age, operational conditions and history, and geological and reservoir conditions. A clear presentation of your risk profile is crucial for negotiating (and pricing!) appropriate coverage.
Highlight your risk mitigation efforts: Demonstrate the steps you’ve taken to maintain well integrity and prevent control incidents. This could involve your well construction and design, maintenance history, monitoring and testing procedures, and regulatory compliance, as well as your incident response plan and your general operational culture. If you are a good operator who has significant risk mitigation in place, you are a lower risk client and your coverage should be priced accordingly! If you have a good story, tell it!
Be open to policy adjustments: Remember that negotiation is a two-way street. The better you are as an operator, the more you might consider higher deductibles. Higher deductibles might help you achieve lower premium costs. At the same time, ensure that any trade-offs you make align with your risk tolerance and financial capacity. At Novation, we are experts in implementing higher deductible programs. Let’s discuss your potential here!
Common Pitfalls
In negotiating your COW policy, it’s important to avoid some common pitfalls.
Overlooking the insurer’s financial strength: Not all insurance providers are created equal.
Especially given the volatility of the oil and gas sector, it’s essential to ensure your insurer has the financial strength to handle a significant claim. Look beyond the policy terms and assess the insurer’s financial ratings and track record in handling claims. Your lender and contractual counter parties will also have requirements in this regard.
Underestimating the value of a broker: An experienced broker can be an invaluable asset in negotiating your COW policy. They can provide insights into market trends, advise on negotiation strategies, and leverage their network to access favorable policy terms. Similarly, since COW is a complicated policy, an inexperienced broker may not serve you very well. At Novation, we can also help you with your broker strategy, even if we do not become your broker.
Not reviewing your policy periodically: As your operations evolve, so should your COW policy. Regularly review your policy to ensure it remains aligned with your risk profile and operational realities. If you acquire or sell wells, you should reevaluate your portfolio as close to the closing of the transaction as possible.
Navigating the COW insurance landscape may seem daunting, but it’s a task you can’t afford to overlook. At Novation, we are here to assist you at every step of this process. Contact us today to discuss your COW insurance needs, and to formulate and implement a comprehensive strategy to get you’re the best COW coverage at an appropriate price!