Nationwide’s recent statement declaring its policy designed for homeowners and business does not cover liability and losses related to fracking is interesting, but not as interesting as the coverage it has generated.
The statement, issued earlier this week, was prompted by the circulation of the company’s underwriting guidelines on the Internet after somebody posted them on Facebook in the context of the fracking debate, said Nancy Smelter, a spokeswoman for the agency. With that, Nationwide felt it necessary to explain why it didn’t cover losses from fracking:
From an underwriting standpoint, we do not have a comfort level with the unique risks associated with the fracking process to provide coverage at a reasonable price. Insurance is a contract and it is designed to cover certain risks. Risks like flooding and mining or drilling are not part of our contracts, and the customer should seek out an insurer that handles these customized types of insurance.
There is nothing all that unusual about Nationwide’s position, except for the company’s need to publically explain it suggests risks associated with mineral extraction -- fracking in particular -- are becoming more of a mainstream concern than a niche. How many people or businesses have a mining or drilling operation in their backyard? Prior to on shore drilling boom spurred by shale gas development and high volume hydraulic fracturing, relatively few. But the implication is that shale gas extraction could potentially affect a significant number of policyholders in Nationwide’s marketplace.
The Nationwide statement points out that its general homeowners policy never covered losses to mineral extraction claims, and it puts fracking into the same category as drilling and mining. But the headlines that this generated made it easy to believe that the company was taking a position against fracking. This from the Associated Press: US Insurer Won't Cover Gas Drill Fracking Exposure. And this from the River Reporter: Nationwide Insurance: No Fracking Way. (In the wake of this type of coverage, Nationwide issued another statement this afternoon emphasizing that it’s policies have not changed regarding fracking, and that the company is not cancelling policies. Click here for full statement)
Because the Nationwide story is rooted in the controversial assessment of fracking risks, it presented an opportunity for anti-fracking activists, and a hook for media serving a public eager to know more. If a company that is expert in assigning and mitigating risks is saying no thanks to fracking, it’s logical to conclude, then the risks must be substantial. But there is more to it than that. What if a company that has never dealt with mineral extraction policy suddenly decided to cover fracking in its policy? Now that would be a surprise, but I doubt it would make headlines.
While the approach to these stories may have been off target, the liability issue is important and problematic. Unlike other industrial activities that operate in designated areas, owned by parties subject to fixed regulatory and commercial jurisdictions, drilling often occurs as a secondary function on other people’s residential land – possibly owned by uninformed third parties --– in a relatively unregulated, piecemeal, and itinerant way. The underlying issues of risk and liability are a critical part of understanding the impacts from shale gas. If the Nationwide story raises awareness and sets up discussion of this, then it’s worthwhile.