Beads of sweat begin to form on the brow of an underwriter immediately after spotting saltwater disposal, injection wells or treatment facilities on an application. These are some of the most uncomfortable risks in the energy sector to insure today.
As operators continue to increase their use of fracking in reservoirs, dealing with the produced water byproduct of such drilling practices continues to be a growth segment of the energy industry. Wells that manage produced water from the developing fracking industry are designated as Class II. With the shift to new completion strategies such as fracking, the number of saltwater disposal and injection wells has increased to roughly 144,000 Class II wells according to the EPA in the US.
Then why does your broker continually have trouble placing your saltwater disposal and injection well with insurance carriers? Road blocks often present themselves in the marketing of these types of risks to insurance carriers for the purpose of underwriting. It takes an insurance broker with a keen understanding of saltwater operations in order to accurately represent your enterprise to carriers. A broker with the patience and ability to walk underwriters, who are typically unfamiliar with the process and operations, through your company’s functions and any true associated risks is essential. Due to the complexity of these types of risks, hands-on conversations with underwriters and business owners in order to paint an accurate picture of operations and safety measures are necessary to procuring the proper coverage.
Unfortunately, the carriers that will write this type of risk are constantly in flux. Crum & Forster might be able to support these policies today, but next year they might decide to back out of the market altogether. Staying in front of these changes can often be challenging for insurance brokers if they are unfamiliar with the market.
Let’s take a look at 3 of the key areas that can cause heartburn in your insurance search.
Earthquake connections. It seems like every week a new story pops up in the newspapers linking injection wells to earthquakes in local communities. While scientists are still debating the specifics of these connections, it does pose a problem for business owners working with their brokers. This earthquake dialogue can be frightening to many underwriters and might reduce their “appetite” as a risk they are hungry to insure. Owners can help inform the conversation with carriers by explaining their protocols for monitoring their injection facilities’ capacities, volumes, pressures, etc. How are you a good steward of the formation that your facility is engaged in? Inform your insurance broker, so that he or she can better represent the operation to carriers. Stay on the lookout for any exclusions related to earthquakes with the policies presented by your broker as well. These exclusions might be able to be negotiated in your favor if addressed at the beginning of the quoting process.
Lightning strikes. Some of the most significant financial losses in the saltwater industry have been caused by lightning strikes to equipment and facilities. The equipment’s fiberglass components and combustible contents are more likely to go up in flames when struck than other oil field tanks and machinery. A single lightning strike can cause massive equipment and property losses as well as present a high-risk factor for human loss or injury. These losses could exceed millions of dollars very quickly. In the insurance world, claims stories circulate among underwriting teams as a means to increase their awareness of ways to mitigate future losses. Carriers would like to better understand your company’s lightning mitigation systems and protocols. Informing your broker of any “bells or whistles” that your company has in place to prevent these catastrophic events is key.
Pollution exposures. This list wouldn’t be complete without mentioning the inherent risk of working with a pollutant such as produced water. Saltwater disposal sites process large quantities of fluids on a daily basis. Underwriters often see risk associated with the transport, loading/unloading, storage and injection of these fluids. Contractors could easily have a surface spill from a water truck at the site or the integrity of the well could be compromised resulting in the pollution of the subsurface environment. The cost associated with clean-up on these types of claims can be very costly. How do you protect against these types of scenarios in your operations? Do you require all contractors to carry insurance too? Work collaboratively with your broker on strategies to better protect your company, employees, and community.
Using the above strategies and insight can only benefit your chances of success with carriers. If you’d like to talk with a broker that is familiar with saltwater exposures, click here, or check out our resources and request a quote here.