As the number of earthquakes in Oklahoma exploded into the hundreds in the last few years, nearly a dozen insurance companies moved to limit their exposure, often at the expense of homeowners, a Reuters examination has found.
Nearly 3,000 pages of documents from the Oklahoma Insurance Commission reviewed by Reuters show that insurers and the reinsurers who cover them grew increasingly concerned about exposure to earthquake risks because of heightened frequency of seismic activity, which scientists link to disposal of saltwater that is a byproduct of oil and gas production.
Even as they insured more and more properties against earthquakes in the past two years, six insurers hiked premiums by as much as 260 percent and three increased deductibles. Three companies stopped writing new earthquake insurance altogether, state regulatory filings obtained by Reuters show. Several insurers took more than one of those steps.
In addition, the insurers would consider suing oil and gas companies for reimbursement in instances where they would have to pay damages to homeowners, according to several sources, including two insurance company officials.
So far Oklahoma’s biggest earthquake was a 5.6 magnitude temblor in Prague in 2011 that buckled road pavement and damaged dozens of homes.
However, the push to limit earthquake exposure reflects insurers’ fear that the surge in small quakes is a portent of a ‘big one’ in coming years, given the relationship between the magnitude and a total number of earthquakes in a certain area.
The filings show many insurers explicitly stated they were concerned about exposure to earthquake risk. In late March, the U.S. Geological Survey (USGS) warned that 7 million Americans were at risk of so-called induced seismicity. The warning further heightened insurers’ and reinsurers’ concerns, Oklahoma Insurance Commissioner John Doak said.
Because earthquakes were rare in Oklahoma before shale oil and gas production soared in the past decade, very few residents carried earthquake insurance back then.
Oil, Water and Quakes
That has changed as the number of quakes of magnitude 3.0 and higher recorded in the state soared from a handful in 2008 to 103 in 2013 and 890 last year, according to USGS. The value of coverage, usually offered as an add-on to standard homeowners’ policy, also spiked to $19 million in 2015 from less than $5 million in 2009, according to the Insurance Information Institute, a trade group.
Scientists link the quakes to the injection of wastewater generated from the oil and gas production process deep underground. Volumes of so-called “produced water” have ballooned as horizontal drilling and hydraulic fracturing, or fracking, boosted output in Oklahoma.
Monthly injection volumes in Oklahoma doubled between 1997 and 2013, according to a 2015 Stanford University study.
The Oklahoma Oil & Gas Association has said state regulators’ efforts to work with producers to limit the amount of wastewater injected would reduce seismicity.
So far, relatively few homeowners have filed claims, in part because the damages were not big enough to exceed the deductibles. Some who did say they had trouble getting compensation.
Julie Allison said the cumulative effects of the 39 earthquakes of magnitude 3.0 and above that had struck within two miles of her home in Edmond, Oklahoma, had caused $70,000-80,000 in damages, but Farmers Insurance denied her claim in April.
“They did not deny that we had damage,” Allison said. The insurance company, however, blamed it on ground erosion and settlement, she said.
Farmers said it relied on outside engineering experts for the assessment and that the Allisons have accepted the company’s offer to pay for a second opinion by an expert of their choice.
Higher Exposure
For some insurers and reinsurers the risks have proven too big. Responding to the pull-back and premium hikes Oklahoma’s Insurance Commission has scheduled a “fact-finding hearing” in late May, Doak said.
Travelers Insurance Company, the sixth-largest provider of earthquake insurance in the state, stopped allowing existing policyholders to add earthquake coverage in November 2014. In a filing, it said it was making the change “to manage our exposure to earthquake in the state.”
The Hartford stopped writing earthquake insurance in Oklahoma in late 2014. Oklahoma Farm Bureau Mutual Insurance Company removed earthquake coverage from their existing homeowner policies in February 2011, filings show.
The Oklahoma Farm Bureau said it made a “business decision” to remove coverage in 2010. Travelers declined to comment beyond its filing. Hartford declined to comment.
Other companies raised deductibles or premiums. Andrew Walter, manager of underwriting research and development at Country Mutual Insurance Company, which raised its deductible last year, said the step aimed to “protect our financial strength in case of a large scale earthquake in the state.”
Others that hiked premiums include Chubb Ltd, which said it kept providing coverage to existing and new customers, but would not discuss premium rates, and EMCASCO Insurance Company, which did not respond to requests for comment.
Risk modelers fear that insurers are too exposed in the event of a “big one,” even though claims have been few thus far.
If they do end up with substantial claims for a large quake, insurers could sue the oil companies for reimbursement. At the Oklahoma insurance regulator’s request, several insurance companies clarified last fall that they did cover man-made quakes, which provided an incentive to try to recoup payouts from oil and gas companies.
Two insurers – the United Servicemembers Automobile Association and Palomar Specialty – said they could consider such action.
(Additional reporting by Liz Hampton and Terry Wade in Houston.)