Chartered Insurance Institute warns on growing fracking risks

Chartered Insurance Institute warns on growing fracking risks by Intelligent Insurer, March 20, 2017
Insurers need to prepare for the impact of increased onshore fracking on UK households and businesses as there are currently no policies in the market that cover it, according to a Chartered Insurance Institute (CII) report.

The CII’s claims faculty new generation group stated that while the existing products provide adequate cover for households and small businesses, and no insurer specifically excludes fracking, there are no insurance policies that specifically cover it.

“Fracking is not something we can ignore,” said Matthew Connell, director of policy and engagement at the CII. “While current products appear to provide some cover, there are no insurance policies that specifically cover it either.”

According to the ‘Insurance implications of fracking’ report, hydraulic fracturing (fracking) has been used in the UK for years, but the scale and the techniques applied are changing now that the government has said it will support it at policy level. Large-scale fracking could be rolled out across the UK in the near future and while there are regulations in place to ensure it is as safe as it can be, insurers must consider the potential risks any increase in activity could bring.

The key perils associated with fracking include earthquakes, explosions and fire, pollution, injury and death. The report said: “While cover for these risks are included in most insurance policies, fracking will pose additional complications around liability. Widespread fracking may also lead to increased claims frequency near fracking sites and then insurers may have to consider how they underwrite this emerging higher-risk group.”

The CII group has outlined recommendations for insurers to prepare for the emerging risk from fracking.

“Insurers need to be prepared for claims in the event of a fracking-related loss and consider policy wordings with increased fracking in mind,” it said.

Connell added: “The profession needs to think ahead around the issues that more extensive fracking could raise so that we don’t have another ash-cloud scenario where the profession is taken by surprise with an unprecedented event affecting policyholders. It is only by tackling the real risks that people and businesses face that the insurance profession can ensure it is relevant in the future.” [Emphasis added]

[Refer also to:

New Technology Creates New Insurance Issues for Oil and Gas Lease Operators by Pascal Ray and AmWINS Energy Specialty Practice

This shift to unconventional drilling and heavy multi-stage fracking has created new insurance issues for the industry:
• Increase in blowouts during the completion/fracking stage.
• Increase in blowouts involving communication between multiple wells.
• Increase in blowouts caused by casing/cementing failure.
• Increase in blowouts caused by surface events.

In addition to these blowout trends, we are seeing:
• An increase in blowouts involving producing wells.
• An increase in blowouts involving plugged and abandoned wells.

While fracking has been the cause of some of the blowout increases, producing wells and plugged and abandoned wells are experiencing underground blowouts from the failure of old and corroded casings. These underground blowouts can lead to cratering events that are costly and difficult to bring under control.

Underground blowouts can be much more expensive to bring under control than surface blowouts, yet many operators do not insure these wells or have high enough limits for them. Another issue that has arisen from fracking is an increase in surface and water table pollution events that can result in expensive claims and erode the Control of Well limit rapidly, if not entirely. As a result, many of the blowouts that are now occurring are under-insured. [Emphasis added]

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