Probably one of the most fascinating studies of insurance can be found in the oil industry. Oil requires its insurors to enter diverse fields of specialty, virtually unlimited geographical areas, and to cope with high concentration of value in small areas. Insurance requirements of the oil industry had been quite well satisfied through the 1940's. In the 1950's the search for oil and development of producing areas offshore grew to the point that it created particular needs which prior to that time had not existed or had not existed to the degree then attained.
At the point at which the vessels and structures which were required for the development of oil production in unprotected waters of the oceans of the world came a stable market was in existence in Britain and to a lesser degree in this country. Both Markets were actively engaged in the insurance of oil risks of all sorts including inland submersible drill barges and drilling and production sites over water. Some American Underwriters were less enthusiastic in the acceptance of water risks than were the majority of the British Underwriters. Nevertheless, at the outset of the movement toward offshore mobile drilling units, both were actively engaged in insurance in this field. One of the very first self-elevating mobile units was insured entirely in the American Market. From that time other units were insured largely in the British Market.
Some general information of the workings of the Domestic and Foreign Markets may be helpful in considering the developments that later occurred in the insurance of offshore oil risks.
The American Market for the most part is made up of Stock Insurance Companies which are publicly held corporate entities operating under the law of the state of incorporation and each state in which they are entered to do business. The executive department of each insurance company determines the general fields of insurance to be entered. It assigns Underwriting authority to managers, who are considered to be specialists in their fields, to accept insurances in amounts not exceeding certain specified dollar limits by class of risk. The Underwriter is charged with the responsibility of protecting the assets of his company and endeavoring to make a profit by accepting only those risks which he considers to fit the framework of his underwriting program. Considering the need of a spread of many individual risks within a class, an underwriter may change insuring conditions or rates to compensate for variations from the accepted norm and make an otherwise undesirable risk become acceptable. Particularly desirable risks may become insured at more favorable terms. This is the basis of "risk underwriting" generally supported by most Americans. His ability to hold a favorable position in his company is to a degree determined by comparison of results with other insurors of the industry. The result is a Market which may be generally reluctant to enter new fields on a broad front. It is not easy to make sweeping changes in underwriting policy in most companies.
