On July 13, Nationwide Insurance issued a press release regarding concerns about fracking. Since then, the media has been full of stories from both pro- and anti-fracking groups analyzing this press release and its implications.
Here are a few of the main comments from Nationwide:
“Insurance works when a carrier can accurately price the coverage to match the risks. When information and claims experience are not available to fully understand the scope of a given risk, carriers aren’t able to price protection that would be fair to both the customer and the company.”
“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.”
The media was up in arms, with themes such as “insurers won’t cover fracking,” and we know our readers are probably concerned with the implications. So here are our thoughts on the matter. To some degree, Nationwide has simply reminded property owners that all insurance is for a particular type of coverage, and fracking may not be covered. For property owners who have leased or may be thinking about leasing their property for fracking, what is important is to understand the potential risks involved. In the April edition of The Greenfield Advisor, we discussed the real estate risks that can stem from improper fracking activities and the impacts to value associated with those things coming to fruition. For instance, contamination of the environment and/or impairment of drinking and irrigation water on or near one’s property typically depresses real estate values, regardless of whether it is related to fracking. And property owners may not have coverage or be able to get the coverage they need to mitigate the potential risks that may be associated with improper fracking activities.
When it comes to purchasing real estate, we have all heard the saying caveat emptor or “let the buyer beware;” in fact, that is why more often than not individuals purchasing real estate use brokers to help them understand the issues and risks. With improper fracking activities, we are dealing with issues that arise after the purchase of a property (when brokers are no longer advising them and property owners are covered by an insurance policy).
What can property owners take away from this? First, it is a good reminder to look at your property insurance policy periodically and make sure it covers any potential risks in your area. For instance, if you are in a flood zone, you will probably want to have flood insurance. Second, this situation reminds us that any potential risks associated with improper fracking activities may not be covered by property insurance policies. If you plan to lease your property for fracking activities, you probably want to consult an attorney to assist you in mitigating those risks. At the very least, property owners should know the risks associated with improper fracking activities. Lastly, sellers/owners should beware (caveat venditor) of what is happening around their property and take the necessary actions to mitigate your risks.
Recently, Bucknell University partnered with the Southern Regional Science Association to host an oil and shale gas workshop that focused on fracking on July 30-31 in Lewisburg, PA. The focus of the workshop was to discuss current research related to the Marcellus Shale on the economic impacts and real estate valuation impacts of fracking activities. A paper that emerged from this conference is currently under peer review; when its status is known, I’ll be back to discuss it in depth.