The Insurance Implications of Increased, Possibly Fracking-Related Quakes in Okla.

The statement says the recent changes "are not due to typical, random fluctuations in natural seismicity rates." Instead, the statement says a "likely contributing factor to the increase in earthquakes is wastewater disposal by injection into deep geologic formations. The water injection can increase underground pressures, lubricate faults and cause earthquakes—a process known as injection-induced seismicity. 

"Much of this wastewater is a byproduct of oil and gas production and is routinely disposed of by injection into wells specifically designed and approved for this purpose."

A CBS News story reports that scientists in Ohio are drawing links between fracking-related activities and increased earthquake activity in that state, and KXAN in Texas reports that lawmakers there held a hearing to investigate whether "hundreds of minor earthquakes" that have occurred in Northern Texas near the sites of oil and gas production are the result of fracking or a fault line.

Not fracking, but wastewater injection

Joe Woods, vice president of state government relations for the Property Casualty Insurers Association of America, is based in Texas and he spoke of the increased earthquake activity there. "I can remember going years in Texas without ever hearing about an earthquake and there were six or seven over the last month that I've read about," he says. 

He notes that they were all small earthquakes, and he says the same is generally true in Oklahoma, but he points out they are occurring in areas that are "hotbeds of horizontal drilling and fracking and the injection wells that go along with that activity."

Woods makes clear that research he has seen on the subject has linked increased seismic activity not on fracking itself, but on wastewater injection, "which is related to fracking because they're getting rid of the water from the fracking that way." Woods' comment is in line with the USGS findings. 

Where insurance is concerned

Asked whether earthquake insurance would respond if a conclusive link was, in fact, found between fracking-related activities and the increase in earthquakes, Woods says, "When and if that happens, that's just going to be a hotbed of litigation, and the lawsuits will go in all directions."

He notes the primary question would be, "Can you link this particular fracking operation to this particular earthquake, which hurt this particular property? And that's a tough trail to go down."

Woods adds, "We've been talking about this in our shop for a couple of years now trying to put together the scenario. You have an earthquake, and a homeowner files a claim—do they file it against their homeowners policy or do they file it against the nearest drilling operation, or does the homeowners insurer subrogate?"

Loretta Worters, Insurance Information Institute vice president, says earthquake insurance would still respond, and she compared the issue to discussions surrounding climate change, and whether manmade activities are the cause for an increase in storms or other damaging events.

"Whether climate change has caused more hurricanes or extreme weather is irrelevant to insurance," she says. "The bottom line is insurance pays for wind damage and earthquake insurance covers earthquakes. 

"I don't know if that is something that might change down the road if it was found conclusively that human activity by fracking contributed to earthquakes, but as of now, no."

Outreach and take-up rates

Regardless of the cause, there is no disputing Oklahoma, among other states, is experiencing more earthquakes. Woods says PCI has done some outreach in the form of press statements and an op/ed informing Oklahomans of the risk and advising them to check their coverages and consult with their agents.

The Oklahoma Insurance Department has done its part as well, with Insurance Commissioner John D. Doak issuing a statement in October urging residents to purchase earthquake insurance. Doak said policies vary in cost, but a homeowner can expect to pay $100 to $150 per year.

An insurance department spokesperson did not return a phone call yesterday, but a Reuters story reports the department conducted an informal survey among insurers to see if take-up rates had increased. Spokeswoman Kelly Collins told Reuters 3 of the top-10 firms in the state responded. She said when the state suffered a magnitude 5.6 quake in 2011, only about 2%-4%   of customers had full coverage. Now, about 12% to 18% do. 

Woods says he has not seen an overwhelming response, "but at least anecdotally, I'm picking up that there are more people buying earthquake coverage." He bases the observation on conversations with several companies that say they are writing more coverage.

Figures from I.I.I. show that Oklahoma ranked 31st among the states in earthquake insurance direct-written premium in 2010 at $6.76 million. In 2011, the state was 28th at $9.53 million, and in 2012, Oklahoma was 25th at $11.63 million. I.I.I. does not yet have figures for 2013. 

Woods also says that despite the increased earthquake activity, insurers do not seem to be shying away from the risk in Oklahoma. I haven't seen or sensed any pullback from the companies in response to all of the activity," he says. "If you want to shop earthquake, I think you can find plenty of coverage there."