The increased earthquake risk in Oklahoma, as evidenced by the 5.6-magnitude tremor that struck the state Saturday, should send insurance agents on a quest to learn as much as possible about the effects of fracking and communicate that knowledge to clients.
Andrew Castaldi, head of catastrophe perils at Swiss Re Americas, stressed the importance of continuing education training on the subject in a recent interview with Insurance Business America
“I would expect that at renewal or anytime in between, agents inform their insureds of the possible increased risk and suggest various ways to reduce that economic burden,” Castaldi said. “This would start with adding an earthquake endorsement to the policy.”
Though acknowledging that hefty premiums and high deductibles often keep home and business owners away from the coverage, he noted that “the alternative can be more costly.”
Just 15% of property owners in Oklahoma have some level of insurance protection against earthquake loss, according to Swiss Re. Thanks to exclusions and high deductibles, the state insurance department has acknowledged that just eight of 100 earthquake-related claims were settled in 2014.
Yet regulators have done much to ensure the transparency of the market. In a survey of carriers writing coverage in the state, 70% of respondents clarified that their policies cover hydrofracking-related quakes.
Carriers may also begin introducing new products that make earthquake coverage an easier sell for agents.
In a recent report, Swiss Re urged insurance professionals to begin considering products that incorporate an aggregate cover for those suffering multiple small losses, or decreased deductibles and decreased limit of cover option for those concerned about small levels of damage.
The Saturday quake hit just after 7AM near Pawnee, Oklahoma and was followed by massive aftershocks throughout the day measuring as much as magnitude 3.6. Though there was just one injury over the weekend, the tremor tied with a 2011 quake near Prague as the strongest in Oklahoma history.
The state has shown a huge uptick in quake activity following the widespread introduction of fracking. The number of magnitude-3.0 earthquakes in Oklahoma has risen from roughly two per year in 2008 to an average of nearly three per day, making it the most seismically active of the lower 48 states.
Similar associations have been made throughout the US and in Western Canada, where 62% of the 258 magnitude-3.0+ earthquakes recorded from 1985 to 2015 have been associated with hydrofracking wells.
Mega quake raises questions on fracking and quake, liability insurance
The state of Oklahoma’s problematic earthquake insurance market