Twenty years on - Piper Alpha’s legacy
Wed 23 Jul 2008
This month marks the 20th anniversary of the Piper Alpha disaster, when 167 men were killed in a devastating explosion on the North Sea oil platform.
Most people agree that Piper Alpha was a turning point for the offshore industry and ushered in big changes in safety management, regulation and training. An inquiry led by Lord Cullen, opened in January 1989, culminated in a 500-page report.
This led to North Sea safety being shifted from the Department of Energy to the Health and Safety Executive (HSE). Among the changes was automatic shut-down valves being made mandatory on rigs, to starve a fire of fuel.
But Piper Alpha was also a turning point for Lloyd’s and the insurance industry at large. A $US1.4 billion insurance loss, Piper Alpha was at the time the insurance industry’s costliest man-made catastrophe and the shock waves reverberated around the world.
Dominick Hoare, joint active underwriter at Munich Re Underwriting, recalls the immediate aftermath of the tragedy. “Lloyd’s was in a state of shock when news of the disaster came out. There was a very emotional reaction to the number of fatalities and injuries,” he remembers. “After that initial emotional response the Room had to come to terms with the magnitude of the loss as it dawned on us what a truly catastrophic event had happened.”
Lloyd’s initially struggled to quantify its exposure to the complex loss that ensued, Hoare remembers. “Piper Alpha revealed just how deficient some exposure monitoring systems were then,” Hoare says, adding, “life has changed dramatically since.”
Today’s Lloyd’s insurers are more advanced and their accumulation systems more precise. “Specifically, we are very aware of the complex interdependencies involved in business interruption exposures,” Hoare told lloyds.com.
“Lloyd’s underwriting managers demand it, as does the Lloyd’s Franchise Board.”
Lloyd’s is now the market leader in the oil and gas industry in terms of exposure management – and that was born out of Piper Alpha, Hoare believes.
The Piper Alpha tragedy prompted big changes in the industry's approach to safety management, regulation and training. The work hasn’t finished and this month the Secretary of State for Work and Pensions, James Purnell, asked HSE to carry out a review of progress in offshore safety since the publication of its KP3 report last year.
The KP3 report was the culmination of a three-year investigation carried out by the HSE’s Offshore Division into the safety and integrity of over 100 offshore installations and the equipment on them.
Announcing the latest review, Judith Hackett, chair of the HSE said: “This will be a fitting and timely way to ensure that no-one becomes complacent and that we all maintain vigilance to ensure that the lessons of the Piper Alpha tragedy are never forgotten.”
Hoare welcomes the review. “The North Sea is a mature oil province and some of the infrastructure is approaching the end of its design life,” he notes. “Plus we see some legacy issues relating to lack of investment in the 90s when oil prices slumped.”
But the North Sea offshore platforms are an acceptable and continuously improving insurance risk, Hoare says. “And it is part of our remit at Lloyd’s to contribute to improving that risk.”
The UK sector is one of the largest producers of offshore oil and gas in the world, and remaining reserves are likely to be equivalent to those produced already. There are about 29,000 people directly employed offshore and about 320,000 other jobs either dependent on or supported by the offshore sector.
Lloyd’s Head of Exposure Management, Paul Nunn, said: “"Since the Realistic Disaster Scenario (RDS) framework was introduced in 1995, syndicates have had to demonstrate they have an accurate handle on risk accumulations for major offshore complexes. As the memory of the Piper Alpha disaster recedes, it is reassuring to know that the lessons learned from an exposure management perspective are not forgotten."