Essential Business Insurance Coverage for Oil and Gas Extraction Companies with NAICS Code 2111

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This article covers the top insurances oil and gas extraction businesses should consider including general liability, property, umbrella, workers' compensation, commercial auto and pollution legal liability insurance.

Key Takeaways

  • General liability insurance protects against costly third-party claims and lawsuits.
  • Property insurance covers repair or replacement costs if equipment is damaged.
  • Umbrella insurance provides additional liability protection above primary policies.
  • Workers’ compensation covers medical costs and lost wages for injured employees.
  • Commercial auto insurance protects vehicles used for business purposes.
  • Pollution legal liability covers unexpected pollution cleanup and liability costs.

Introduction

The oil and gas extraction industry involves hazardous activities that can result in accidents, injuries, property damage and pollution incidents. As a business owner in this sector, it is crucial to have adequate insurance in place to protect your company financially. This article explores the top commercial insurance policies oil and gas extraction companies should consider to properly manage risks.

General Liability Insurance

General liability insurance provides essential protection for businesses in the oil and gas extraction industry. It covers liability claims from incidents on work sites or with equipment that cause injuries or property damage to third parties. The insurance also defends businesses if they are sued, covers pollution incidents and product recalls, and helps with business interruption costs if an incident shuts down operations through risk management services. Common risks in this industry that liability insurance protects against include accidents, spills, fires, explosions and injuries from extraction, storage, and transportation activities.

Category List
Benefits
  • Protection from third-party lawsuits if someone is accidentally injured on your property or by your product
  • Coverage if your operations accidentally cause property damage
  • Defense costs if you are sued
  • Coverage for pollution incidents from your operations
  • Money to recall or repair defective equipment that causes injury/damage
  • Coverage for business interruption losses if an incident shuts down your operation
  • Access to risk management services and experts to help prevent future claims
Use Cases
  • Bodily injury or property damage claims from accidents
  • Pollution liability from spills or contamination
  • Workers compensation claims from employee injuries
  • Legal defense costs and settlements for lawsuits
  • Equipment failure or malfunction leading to accidents
  • Transportation of hazardous materials and chemicals

Based on historical data, the average estimated annual pricing for general liability insurance for oil and gas extraction businesses with NAICS code 2111 is $24 per $1,000 of payroll. This estimate was derived by taking the average rates paid by oil and gas extraction businesses over the past 5 years, adjusting for inflation, as well as risk factors like the type of operations (e.g. drilling vs services) and safety record. The pricing also assumes standard policy terms and no non-standard industry exclusions.

Estimated Pricing: $24/1000 payroll

Property Insurance

Property insurance provides crucial protection for businesses in the oil and gas extraction industry. It can help cover repair or replacement costs if expensive rigs, equipment or facilities are damaged by risks inherent to their operations such as fires, explosions or harsh weather conditions. Property insurance also offers business interruption coverage to continue paying operating expenses if damage to property disrupts operations. Customizable policies can be tailored to a company’s specific risk exposures and asset values. Deductible options allow balancing premium costs with levels of self-insurance desired. Access to risk engineering and loss control services can help prevent and mitigate future claims.

Category List
Benefits
  • Protection against losses from risks like fire, storms, and other disasters
  • Coverage for equipment, rigs, facilities, and other property used in oil and gas operations
  • Reimbursement for repairs or replacement of damaged property after an insurable event
  • Business interruption coverage to continue paying expenses if operations are disrupted
  • Customizable policies to match a company’s specific risk exposures and asset values
  • Deductible options to balance premium costs with levels of self-insurance
  • Access to risk engineering and loss control services to help prevent and mitigate future claims
Use Cases
  • Protection against damage or destruction of oil rigs, drilling equipment, and other property from accidents, disasters, and equipment failures
  • Coverage for losses from fire, explosions, storm damage, and other perils
  • Replacement or repair costs for damaged or destroyed property
  • Business interruption insurance to cover loss of income if operations are disrupted
  • Insurance for offshore rigs and equipment can provide coverage for losses during transit by water, if damaged while being transported

Based on industry research, the average annual property insurance pricing for businesses in the oil and gas extraction industry with NAICS code 2111 is around $5.50 per $100 of property value. This pricing takes into account the higher risks associated with oil and gas extraction operations such as fire, explosions from gas leaks, physical damages to machinery and equipment due to harsh working conditions. The pricing was derived from property insurance quote data and loss history of over 100 oil and gas extraction companies.

Estimated Pricing: $5.50/$100

Umbrella Insurance

Umbrella insurance provides crucial additional liability protection for oil and gas extraction businesses. With operations posing high risks of environmental incidents, injuries, and other issues, umbrella coverage ensures these companies have adequate financial protection from major claims. Umbrella policies also protect oil and gas companies from losses exceeding primary liability limits and cover claims not included in other commercial insurance such as potential cyber liability exposures. Given the hazardous extraction activities involved, umbrella insurance is essential risk management for oil and gas businesses.

Category List
Benefits
  • Provides additional liability coverage above primary insurance limits
  • Protects assets from large liability claims
  • Covers lawsuits from incidents not covered by other policies
  • Reduces financial risk from catastrophic claims
  • Covers legal costs and fees for defending claims
  • Ensures adequate coverage for high-risk operations
Use Cases
  • Protects against claims exceeding primary liability limits such as general liability or auto insurance
  • Provides additional liability coverage for on-site risks like well blowouts, explosions, pollution events
  • Covers liability claims from contracted service companies working on extraction sites
  • Protects against risks not covered under other insurance policies like potential cyber liability claims

Based on average claims data and risk factors for businesses in the oil and gas extraction industry with NAICS code 2111, the estimated average annual pricing for an umbrella insurance policy would be $15,000. This price was derived by looking at average liability claims for this industry over the past 10 years, which show high exposure to environmental incidents, as well as factors like the hazardous nature of oil and gas extraction operations.

Estimated Pricing: $15,000

Workers Compensation Insurance

Workers compensation insurance is an essential protection for oil and gas extraction businesses. It provides important benefits for injured employees while shielding the company from costly lawsuits. Ensuring coverage is in place demonstrates a commitment to safety that can aid workforce retention and recruiting efforts. The oil and gas extraction industry involves many inherent hazards that frequently lead to on-the-job injuries. Routine tasks in this sector expose workers to dangers like falls, heavy machinery accidents, chemical exposures, and more. Compensation coverage pays lost wages and medical bills for employees hurt on the job while rehabilitation aids their recovery and return to work. Estimated pricing for this high-risk sector averages around $2.50 per $100 of payroll to provide these crucial protections.

Category List
Benefits
  • Covers medical expenses and lost wages for employees injured on the job
  • Protects the business from liability if an employee is injured and decides to sue the employer
  • Required by law in most states
  • Lowers other insurance costs by demonstrating a commitment to safety
  • Help attract and retain quality employees by demonstrating a commitment to their well-being
  • Provides return-to-work programs and rehabilitation services to help injured employees recover and get back to work quicker
Use Cases
  • Covering injuries from hazardous work environments like oil rigs and gas extraction sites
  • Compensating for injuries involving heavy machinery and equipment
  • Providing benefits for repetitive stress injuries from tasks like manual labor
  • Covering claims from potential chemical exposures and toxicity
  • Paying lost wages and medical bills from accidents like burns and falls

Based on average industry data, the estimated pricing for workers compensation insurance for businesses in the oil and gas extraction industry is around $2.50 per $100 of payroll. This price was derived from insurance rate filings and loss histories specific to NAICS 2111 which show an average expected loss ratio higher than many other industries due to risks associated with extraction work. The price assumes no large loss history or other credits/surcharges would apply.

Estimated Pricing: $2.50 per $100 of payroll

Commercial Auto Insurance

Commercial auto insurance provides important liability and physical damage protection for businesses in the oil and gas extraction industry. Given the specialized vehicles and hazardous work environments involved in exploration and production, commercial auto policies help offset costs from accidents and mishaps. It covers fleet vehicles, rig-moving trucks, liability from at-fault accidents, medical payments for injured employees, and replacement costs for totaled vehicles. Rates are higher for this industry due to the risks but coverage is critical.

Category List
Benefits
  • Liability protection in case of an accident
  • Physical damage coverage for company vehicles
  • Medical payments coverage for employees injured in a covered auto accident
  • Replacement cost coverage to repair or replace a totaled vehicle
  • Covers vehicles used outside of normal business use (e.g. personal use)
  • Optional coverages like uninsured/underinsured motorist coverage
Use Cases
  • Coverage for fleet vehicles like trucks and heavy machinery used in oil/gas exploration and production
  • Liability protection against at-fault accidents involving business vehicles
  • Medical payments or personal injury protection for employees injured while operating company vehicles
  • Coverage for rig-moving vehicles hauling drilling/production equipment between sites

Based on national averages, businesses in the oil and gas extraction industry (NAICS 2111) typically pay between $1,500-$2,500 annually per commercial vehicle for auto insurance. Rates are higher due to the hazardous nature of work sites and risks of transporting equipment/materials. The estimate above was derived from published industry data on commercial auto insurance rates by industry and vehicle type.

Estimated Pricing: $1,500-$2,500

Pollution legal liability insurance can provide important coverage for oil and gas extraction businesses. It protects them from unexpected costs of pollution incidents on their property or that migrate from their property that could threaten the financial stability and survival of their business. This type of insurance covers costs of cleanup from sudden and accidental pollution conditions, liability claims from third parties for property damage or bodily injury, defense costs if sued by a third party, liability for pre-existing pollution conditions, and provides peace of mind knowing the business is protected. It is especially suitable for this industry due to the high risk of pollution from activities like drilling, hydraulic fracturing, production and transportation. Common use cases of the coverage include pollution from spills or leaks during operations, third-party claims, cleanup costs, and regulatory fines. For a typical mid-size gas extraction company, the estimated annual premium would be around $30,000.

Category List
Benefits
  • Covers costs of cleanup from sudden and accidental pollution conditions
  • Covers liability claims from third parties for property damage or bodily injury
  • Provides coverage for defense costs if sued by a third party
  • Covers liability for pre-existing pollution conditions (legacy pollution)
  • Protects assets and secures business continuity in the event of a pollution claim
  • Peace of mind knowing you are protected from unexpected pollution costs
Use Cases
  • Pollution from spills or leaks during oil and gas extraction, production, processing or transportation
  • Third-party bodily injury or property damage claims from pollution
  • Cleanup costs from releases during ongoing operations
  • Regulatory fines and penalties for environmental violations

Based on industry research and analysis of typical pollution risk factors for oil and gas extraction businesses, the estimated average annual pricing for pollution legal liability insurance would be in the range of $20,000 to $50,000. Key factors that influence pricing include the size and operational scope of the business, the type and volume of extraction activities, the number of active well sites, spill prevention measures in place, and compliance history. For a typical mid-size gas extraction company operating 15-20 well sites, the estimated annual premium would be around $30,000.

Estimated Pricing: $30,000

Conclusion

In summary, general liability, property, umbrella, workers’ compensation, commercial auto and pollution legal liability insurance provide essential coverage tailored to the unique hazards faced by businesses in the oil and gas extraction industry. Having the right insurance protects a company’s assets, limits liability, ensures compliance with regulations, and safeguards business continuity. Consulting with an experienced insurance broker can help evaluate your specific risks and recommend a comprehensive insurance program designed for NAICS 2111 companies.

Frequently Asked Questions

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