While many in the insurance industry were focused on the cyber liability, cargo theft, and weather segments in 2012, this year some insurers are turning their attention to other emerging markets with potential. Carriers and brokers are strategizing over how they can best address three hot topics in particular: healthcare, the fracking segment of the energy market, and reputational risk. These segments aren’t new to the industry, but they do present new exposures.
Some companies are developing products to meet what they consider to be an inevitable demand for coverage options in these three areas. It remains to be seen if others will follow suit, but these segments are here to stay and will create new opportunities – and exposures – for those seizing them.
Energy – Fracking
The energy segment has been popping out alternative and green energy insurance products left and right for some time now. However, most insurers have been avoiding the highly-controversial hydraulic fracturing – or fracking – segment like the plague.
Fracking involves extracting natural gas from shale rock layers deep within the earth.
Richard Kerr, CEO of MarketScout in Dallas, says the oil and gas industry has used fracking methods for over 60 years. It has become more prevalent recently because new technology makes the process more efficient and has allowed oil and gas operations to expand into new geographies –like California, Pennsylvania and New York – where fracking wasn’t previously done.
The booming and somewhat controversial fracking method, which faces opposition from some environmentalists and government entities, has also lured some inexperienced people who want to get into this business and make money and that makes insurers very nervous.
“It is a much misunderstood process,” says Kerr. “There are good frackers and bad frackers. You have to have the ability to determine which is which.”
Rick Burns, president of Ryan Specialty Group’s Global Special Risks (GSR) in Houston, says those drilling contractors that do not specialize in fracking may not have the needed technical expertise and thus may present a greater risk than insurers are willing to take on. Disposing of the water that is used during the fracking process could create a hazard, if not done properly, and the insurance industry is challenged with how to cover water disposal companies involved in the process.
There is also a fear of the unknown on the part of insurers.
“The market in general takes a wait-and-see approach to new technologies and industries,” says Burns. “This is extremely new technology. Insurers have said ‘we need to take a look at this and see what we are insuring.’”
Burns says the risk that was covered on the typical oil and gas insurance forms has shifted, and insurers have been hesitant to change their coverage to address the new risks. But he expects carriers will eventually come around.
“The technology is advancing so fast and it’s very expensive technology,” he says. “The insurance community always responds, whether it’s the London market or a domestic market –it’s just the timing on responding.”
Ryan Specialty’s GSR has already responded by offering coverage for energy consultants who work in fracking environments. It offers a package policy with commercial general liability, professional liability, maritime employers liability and umbrella coverage.
GSR is also working on taking its existing well control product and making it more focused and readily available for those independent oil lease operators working with hydraulic fracturing. It plans to launch this product in the next two months.
“Right now, the majority of our focus is doing our best to analyze the risks of hydraulic fracturing and making sure we are creating products that clients want to buy,” says Burns. “We don’t want to keep providing the same coverage we have been with no amendments. It could be that we make a series of small tweaks to coverage or create whole new concepts.”
MarketScout’s Monster Insurance is also launching a fracking insurance program, which it hopes to have completed by July 1. Kerr says Monster is also in the process of writing a white paper on fracking and the insurance industry to help educate the industry on the fracking process. He says given the increasing interest in finding new energy sources, fracking is not going away.
“We are going to hear a whole lot more about fracking; it is very topical in the industry,” says Kerr. “It is the most misunderstood portion of the energy industry today and the most feared segment of the industry today. No one knows what’s going to happen.”
As individual states look at the process and decide which way to go on the matter, advocates will continue to push forward, and Burns says he expects to see more from the insurance industry in response.
“I think there will be many new products coming out in the next two years. People are still learning the technology and people are trying to understand it,” Burns says. “New coverages will crop up and I think existing coverages will be changed to address this industry. The energy insurance industry is a very small community so it’s pretty nimble.”