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Major insurers have slashed their prices for covering oil and gas drilling and exploration outside the Middle East, even inking deals at unprofitable rates, as they bet the war in Iran will expand fossil fuel production outside the region.
Premiums for so-called upstream energy insurance, which includes cover for drilling new oil and gas wells and building offshore platforms, had fallen by about a quarter since the start of the year, brokers said. Some insurers have cut their prices by as much as half as groups battle for market share.
The keenness to take on new projects comes while risks remain high in the Middle East, where some asset owners have been forced to switch to war-risk cover instead of traditional oil and gas insurance.
Prices charged by groups including Allianz, Axa XL and Tokio Marine Kiln had this year dipped into lossmaking territory, according to people familiar with their accounts, as they and other insurers fought to retain clients.
These insurers have been striking deals at rates below the “technical” price, or the rate at which their models predict they will break even after expected claims, according to people familiar with their underwriting.
These can include costs stemming from physical damage, loss of control — such as well “blowouts” in which pressure control systems fail — and resulting business-interruption costs.
Asked about their upstream energy rate falling below break-even at times in 2026, Allianz said that as of mid-July, the rate was “not under” break-even. “We take a disciplined underwriting approach focused on careful risk selection and long-term client relationships,” Allianz said. TMK and Axa XL declined to comment.
The steep discounts reflect insurers’ efforts to retain big clients in the petrochemicals sector, as some hope that higher oil prices and encouragement from US President Donald Trump will unleash a “drill, baby drill” agenda.
Growth in upstream energy production has been slow to materialise — leaving insurers chasing scarce projects at cheaper rates — but carriers are betting that there’s more business to come.
Rupert Mackenzie, a natural resources insurance broker at WTW, said that war in the Middle East had sent oil majors searching for new offshore developments. He pointed to new projects by BP in the Gulf of Mexico and oil exploration off the coast of Suriname.
However, Mackenzie said, most of these projects had relatively small total insured values, while insurers were seeking mega-projects with an insured value of $2bn or more. As a result, he said, the upstream energy market faced a “massive oversupply” of capital competing to back these risks.
This has been welcome news for commercial insurance buyers, whose rates have plummeted. For example, Indonesia’s state oil and gas manager SKK Migas in June secured a premium of about half what it was previously paying, according to three people familiar with the matter.
Last year, SKK Migas had paid more than $20mn in annual premium for an upstream energy policy with CV Starr as the lead insurer, the people said. Under its new policy it is paying about $12mn a year for a total insured loss limit of more than $1bn, exposing its insurers to large possible losses for relatively little reward.
SKK Migas and CV Starr did not respond to multiple requests for comment.
The drop in prices comes as speciality insurance costs have fallen across many lines of business because of an influx of capital into the sector. However, upstream energy prices, which also include renewables such as offshore wind, are falling faster than many other lines.
War between the US, Israel and Iran has also prompted some energy projects to switch to buying so-called war risk cover, rather than standard coverage. As a result, the remaining projects have been relatively less risky, and therefore cheaper to cover.
Insurers are betting that any short-term losses in oil and gas will pay off longer term.
“Upstream [energy] has been a very profitable sector for the market for a number of years,” Mackenzie said, so despite the looming crunch, “the view from insurers is, this is a sector which they would like to have ongoing exposure”.
