Oil Industry to See Insurance Costs Rise Thanks to BP Disaster

Many people all over the world have already heard about BP, which is a British energy company, and its huge oil spill in the Gulf of Mexico. Just after this, the oil industry was hit by a sharp rise in insurance premiums for oil rigs.

This news comes just as BP’s credit rating was downgraded by credit rating agency Fitch. This downgrade came just a few hours after the chief executive of BP admitted that the company had not been properly prepared to fight the oil spill in the Gulf of Mexico.

The insurance industry, which has suffered an estimated £2.4 billion loss due to the disaster, has been very quick to raise its prices. Deepwater Horizon had the largest single oil drilling rig loss since the 1988 Piper Alpha platform explosion in the North Sea. This triggered a $3.6 billion loss to insurance companies.

Moody’s, a credit rating agency, just recently reported on the fallout from Deepwater Horizon. It noted that the insured losses would be significantly higher if BP had purchased liberality insurance in the commercial market instead of self-insuring its risks through its captive insurer, Jupiter Insurance.

The agency said in early reports that the insurance premiums for deepwater rigs have jumped by up to 50 percent since the April 22 explosion. This cost of insuring rigs operating in shallow water has climbed by 25 percent as well.

So what does this mean for the public? Well it could translate into yet another jump in the cost of oil. These oil companies have to make a profit, and if their insurance rates go up, so must the price of their product.