[Note: 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 AP broke some apparently groundbreaking news – Nationwide Insurance has made a decision not to underwrite risks associated with hydraulic fracturing. Immediately, press outlets picked up the story. Clearly this is news – except it isn’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.