Insurance providers want a clearer picture of the potential hazards of deep well hydraulic fracturing in U.S. shale plays as they weigh the costs of covering the risks – or consider whether to provide insurance at all, industry officials and experts say.

Some major global reinsurers, which traditionally pick up substantial parts of insurance exposure, remain unwilling to take on fracking and well drilling risks in shale plays. They will wait until operating, regulatory and legal liability issues become clearer, said Justin Russo, senior vice president of energy insurance provider Energi Inc., based in Peabody, Mass.

A more consistent, visible and effective set of best operating practices is needed, said Russo. “We think it (drilling for oil and gas) can be done safely,” said Russo, who described the dilemma at a meeting of the Environmental Council of the States last month.

“We have developed ‘best practices.’ But the reinsurance community isn’t convinced,” he said.

The unique nature of fracking and horizontal drilling operations presents new legal issues that could bear critically on the effectiveness of insurance coverage, said Earl Hagström, an attorney with the Sedgwick law firm’s hydraulic fracturing group.

“The issue that insurance companies and their counsel are wrestling with is: Is this risk covered under existing policies?” he said.

“Environmental risk has been around for a long time. Insurance companies know how to deal with it. But there are a lot of unknowns (in shale gas operations), and a lot of conflicting information. If something goes wrong, how big a problem is it?” Hagström said.

“It is an unresolved issue that will have to play out over the next few years, maybe longer” as a new block of lawsuits moves through state courts, Hagström said.

“The insurers and the reinsurers are reticent to participate if they can’t understand the risk. If they can’t understand the risk, they can’t price it. That’s what the insurance industry is wrestling with: ‘If we write this policy, is it going to be profitable for us?’ he added.

Several major reinsurers declined to comment on their position on shale gas and oil development for this story.

“The whole business of reinsurance is based on that premise that you can understand and quantify risk and spread it around to an insurance pool,” said Andrew Logan, director of insurance program at Ceres, a Boston-based advocacy group for sustainable resources strategies.

“If an insurer can’t measure and quantify that, the choice would be to stay out of the business entirely. Insurance is one side of the issue. Bank financing is another. Rabobank, the Dutch financial firm, has declared it won’t finance fracking projects at all.

He added, “They don’t understand the risk, and they don’t think it is justified by the returns. We’ve certainly heard other banks are trying to come up with some set of indicators to judge which (drilling) companies to lend to and which not to. Given the tight constraints on gas operations, that’s a pretty big deal.”