Nothing New From Nationwide

David Stein
President, LJ Stein & Company

Energy insurance expert David Stein wrote this guest column only hours before Nationwide Insurance issued a new statement that backtracks on the company’s prior comments about hydraulic fracturing.  According to this statement, the company “has not changed our policies or guidelines, nor are we cancelling policies.”  The new statement closely tracks what David surmised to be the truth and may be found immediately following his remarks.

The AP broke some apparently groundbreaking news – Nationwide Insurance had made a decision not to underwrite risks associated with hydraulic fracturing.  Immediately, press outlets picked up the story.  Clearly this was news – except it wasn’t.


The United States is home to thousands of insurance companies.  Insurance companies make decisions about their individual appetite for risk.  The overwhelming majority of insurers restrict their underwriting guidelines to “plain vanilla” risks – personal auto, homeowners and small “main street” type business. Others choose to work with more risk intensive portfolios – coastal property, aviation, medical malpractice.

Consumer-oriented companies (i.e. Nationwide, State Farm, Allstate) have not been active participants in the oil and gas industry. Energy companies have traditionally attracted a very narrow group of very large insurance companies. These insurers usually have entire energy divisions within their companies. Staffed by specialty underwriters with specific knowledge of the demands and risks of industry, these larger insurers are equipped to approach risk with the requisite knowledge to be successful.

With natural gas development moving into new areas, local insurance agents are eager to become part of this exciting industry.  Nationwide has never been a significant player in the energy industry. The memo appears intended to offer clarification to their underwriting staff. While Nationwide entertains small contracting and transportation risks, agents will likely be declined if they approach the company with businesses more immediately involved in oil and natural gas development.

Likewise, Nationwide has not traditionally expressed an appetite for aviation or medical malpractice risks.  This does not imply that flying is too dangerous, or that the practice of medicine should cease.

Businesses in the United States are generally entitled to select opportunities that align with their interests and abilities.  When did it become newsworthy for a business to exercise this choice?  For whom is this news?

LJ Stein is the leading oil and natural gas specialty insurance broker in the Northern Appalachian region.

(Latest) Nationwide statement regarding concerns about hydraulic fracturing

FOR IMMEDIATE RELEASE
July 13, 2012

Contact:
Media Relations Hotline
614-249-6349

Columbus, OH - Nationwide issued the following statement today regarding insurance coverage concerns related to hydraulic fracturing, better known as “fracking”.

Gas and oil drilling has been going on in this country for many years in the west and southwest. Fracking is another variation of the gas and oil business. In recent years, oil and gas exploration has come to New York, Pennsylvania and Ohio.

Nationwide has not changed our policies or guidelines, nor are we cancelling policies. Fracking-related losses have never been a covered loss under personal or commercial lines policies.

Nationwide’s personal and commercial lines insurance policies were not designed to provide coverage for any fracking-related risks.

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.

However, Nationwide will investigate all claims submitted by our customers that they believe are the result of damage from fracking. Every Nationwide claim is reviewed on a case-by-case basis.

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 natural gas and oil drilling are not part of our contracts, and this is common across the industry.

Our longstanding underwriting guideline is that we do not insure the oil and gas business.

We encourage consumers to be knowledgeable about any risks to their property and assets. For advice, seek the help of financial and legal specialists who can discuss the unique nature of the risks associated with oil and gas exploration. We also advise consumers to talk to their insurance agent to understand what coverage is provided in their personal or commercial lines policies.

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Editors Note:  Our friend Nick Grealy from No Hot Air reported on insurance issues a few months ago and provides some additional perspective in this post.

 

Comments

  1. Bret Jennings says:

    This is nothing new.

    Last year in the spring for an insurance industry magazine an article was included that talked about the risks to the general liablity policies or parts of the commercial and homowners type policies. The general conclusion of that article was that the risks associated with drilling were not covered by those policies. Since Nationwide does sell the BOP’s (buissness owners policy packages) to some of the support companies or like other companies has sub-companies in the group that handle oil and gas company policies. The big question is will this have an effect on the polution liability policies that many of the local subcontractors are obtaining with the BOP’s from local agents. Then will some of the leases that require a certain level of polution liability insurance per well going to be affected. This is where the knowledge of a CPCU or a CIC comes into play to educate the policy holders and more importantly the agents during the CE classes that are attened every year.

    Many of the homeowners and commercial policies are either the ISO (insurance services office, inc.) standardized insurance policy forms, like what is offered by the small mutual companies or for the national companies a very similar policy with few exceptions.

  2. Joanne Fiorito says:

    Mr. Stein, it is true, the news is a year old or better…I’ve been asking my insurance agent for answers for well over a year….However, this business of O&G extraction is still a threat to folks who have homeowners/mortgage insurance (leased or not leased) since activity on an abutting land can and will damage your land/air/water on the adjoining property….this isn’t all it does….according to our REGULAR INSURANCE hazardous mat’l affecting a person’s land who has not leased shall (and does happen), it also nullifies one’s insurance, it also can cause a bank to call in its loan, or simply foreclose on your property. So now, the landowner is forced to seek two different kinds of insurance to protect what is ours….

    There are more problems that you’ve failed to mention in your article, such as:

    if a landowner doesn’t lease but the neighboring land does, the unleased property will now have to get a different insurer so their policy doesn’t become null & void….it also means we will be forced to buy extra insurance from individuals like you because risk is what you do, now how fair or equitable is this to a person who doesn’t wish to expose themselves or their property to said RISK. Why should a neighboring land hold more weight or be allowed to force this scenario onto an abutting landowner. This is just out & out WRONG.

    The O&G industry, along with its banks and insurers like you are foisting UNWANTED RISK upon people who don’t wish to get involved or damage their land/air/water. Additionally, now thanks to our PA legislators – all an O&G company has to do is list their well as a Conservation Well and forced pooling became our reality…..this is a threat to my current insurance policy…..ergo, I’m now forced to hire lawyers to protect my assests.

    So, for you to make light of a serious situation, such as this: where landowners who don’t wish to get involved are forcibly placed (by ILLEGAL LAWS fashioned by industry), into the position of additional finanical duress since this problem wouldn’t exist if this PONZI SCHEME disappeared….I find your response insufficient, and lacking sensitivity to those that you and others have now place over a barrel.

    • Tom Shepstone says:

      None of this is consistent with experience or even what Nationwide has had to say.

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