Fracking in Yorkshire could lead to home insurance premiums rising for thousands of homeowners

Fracking in Yorkshire could lead to home insurance premiums rising for thousands of homeowners

- in Home Insurance, News, Uncategorized
fracking site in yorkshire
Industry experts have warned that thousands of homeowners in areas of Yorkshire where fracking operations are being planned could see the cost of their home insurance increase.

Insurance and consumer affairs experts from both Compare The Market and MoneySuperMarket have separately said they expect home insurance prices to be affected once the actual impact of fracking becomes more clear.

It comes after a letter sent by the Department for Business, Energy & Industrial Strategy was sent to a resident who lives near a planned shale gas project in Rotherham which said:

The Association of British Insurers have confirmed that ‘any potential damage as a result of fracking, such as earthquakes, subsidence, heave and landslip are all covered in general, under buildings insurance’. In addition to insurance cover, landowners could bring a claim against the company if their activities caused damage to their property.

Fracking is supported by the Government as a means of reducing the UK’s reliance on importing energy and involves the use of a mixture of high-pressure water and chemicals to release shale gas trapped in rocks deep underground. It has not taken place in the UK since operations in Lancashire in 2011 were deemed to have triggered earth tremors.

However, seven companies have now been granted ‘exploration licences’ to assess of fracking is a feasible option in Yorkshire. This is expected to affect thousands of homes and business properties in around the 10km x 10km square areas of Yorkshire that are to undergo exploratory drilling.

Kevin Pratt, the consumer affairs expert at MoneySuperMarket, said:

One of the problems with fracking is that no-one is able to say how much damage it will cause to nearby properties, if any. Insurers will pay out for buildings damaged by earthquake or subsidence, so householders in fracking locations can cross that particular worry off their list, at least for the time being.

Problems would eventually arise if a particular area became a claims hotspot because of fracking. Insurers set their prices with reference to the number, size and type of claim in any given postcode, so anyone with an address in an area recording a lot of claims would see their premiums increase.

They might also face a higher policy excess – the amount they have to pay towards the cost of any claim they make. On top of this, if the number of claims in an area were to rise to a high level, insurers might change the definition ‘earthquake’ specifically to exclude events directly attributable to fracking.

Chris King, Head of Home Insurance at Compare The Market, said:

Damage from subsidence, heave and landslip – which could occur as a result of fracking – are traditionally covered under home insurance policies.

However, it’s important to note that due to the significant costs of these claims, the excess is often much higher. Insurers tend to use previous risk data to access the likelihood of a claim and so, as fracking has failed to really accelerate over the past couple of years, it’ll be a task for providers to calculate the effect this will have on premiums.

It may take months – or even years – for insurers to collect the relevant information they need, but if an area becomes at high risk of subsidence as a result of fracking, it is likely that premiums will eventually increase.

Despite the industry fears, the Association of British Insurers said that “there is, at present, little evidence to show a link between fracking and seismic activity that could cause damage to a well-maintained property”, and that it was currently not aware of any claims where fracking has been blamed as a cause of property damage.

As well as the fears over rising home insurance costs, homeowners also have to contend with a potential loss in value of their property due to fracking. In July 2015 a draft report by the Government was published under the Freedom of Information laws that suggested the price of houses situated close to fracking sites could fall by as much as 7%. However, the Government distanced itself from the reports findings following its publication, claiming it was only an ‘early draft’ which was not ‘analytically robust’.

 

 

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