U.S. Heat Wave: Managing Power Outage Risks
Published on: 22-Jul- 2011 | Comments: 0
A massive heat wave moving across the United States has put significant pressure on power utilities to meet the demands of residential and business customers.
Utilities in the Northeastern United States, in particular, have warned of potential stresses on their power grids, which could result in temporary outages for some customers. Additional intentional rolling blackouts and brownouts, or reductions in voltages, are likely and predicted for many regions.
While the typical service interruption coverage requires that an interruption result from a covered peril, businesses can take steps now to prepare for any potential shortages, protect their supply chains, protect against physical damage to property and equipment, and address potential coverage issues.
Risk Mitigation Steps
The following steps can be taken to protect your supply chain:
- Identify supplies and suppliers in the areas likely to be affected by power outages.
- Determine the extent of your reliance on these supplies and suppliers, their value/importance to your manufacturing or service delivery process, and the extent to which any delays might affect your ability to deliver products or services to market.
- Review any alternative sourcing arrangements and/or identify new suppliers if such capacity is needed and then engage in discussions with regards to actual or contingent sourcing needs.
In addition to protecting your supply chain, it is important to review your loss control and security guidelines to ensure protection against damage to property and equipment from power outages, which can result in operational disruptions.
- Determine the criticality of the facility to ongoing operations and if alternative production or service sites are available.
- Assign responsibility to a plant manager or other operations executives for maintaining and disseminating information about planned reductions in service or power outages.
- Review the required shutdown times of all equipment in the facility and determine how such timing can be accommodated in relation to planned reductions in service or power outages.
- Review security measures at the facility, especially human to electronic monitoring ratios to determine if additional human presence may be required to protect the facility during any reductions in service or power outages.
- Identify critical EDP functions that might impact operations if power to data centers is lost or if an outage exceeds the capabilities of UPS systems in place.
- If your facility must run on generator power, review your fire safety protocols to ensure safe operation will continue.
Insurance Considerations
Service interruption claims can affect several areas of the insurance policy and require unique documentation efforts. Several key policy areas to review are:
Waiting Period: Most service interruption coverage requires a waiting period, that is to say the service must be interrupted for a minimum number of hours before coverage begins to respond. You should also review if the waiting period acts as a qualifier and, after the period of time has elapsed, a dollar deductible applies, or does the waiting period itself act as the deductible.
Notice to the Utility: Many policies require that the insured give notice to the utility of the interruption. If this requirement exists, ensure that it is documented as part of your claim file.
Overhead Transmission and Distribution Lines: Many policies exclude losses arising from overhead lines. As soon as possible and keeping safety in mind, identify and document the true nature of your service interruption, including specific type of equipment damaged, cause of the damage, and distance from your premises.
Distance Limitations: Many service interruption coverage grants have limitations that the cause of loss must be within X miles or feet of the premises, so it is important to document that information early on in the claim process.
Your policy may have separate coverage for Service Interruption Property Damage and Service Interruption Time Element (or Business Interruption). Any claim will need to be broken down in accordance with these separate coverage grants.
While rare, some policies may also include service interruption in contingent business interruption (CBI) coverage. Any interruption of operations arising from a customer or supplier should be researched in the same manner for potential coverage.
Also, you should document and capture all costs for extra expenses to save property from further damage or to continue to conduct normal business operations. These costs could include generator rental or operation, cost to move workers to other facilities, etc.
While not intended to be a comprehensive review of service interruption coverage, this should help identify some immediate time sensitive actions to take as soon as possible to aid in presentation of a claim. As always, it is imperative that you review the specific terms and conditions of your policies.
For more information, contact your Marsh representative or:
Bob O'Brien
National Property Claims
+1 202 263 7863
robert.w.obrien@marsh.com
Paul McVey
National Property Claims
+1 212 345 3928
paul.d.mcvey@marsh.com
Ben Tucker
Property Specialized Risk Group
+1 212 948 2820
ben.tucker@marsh.com
Gary Lynch
Supply Chain Risk Management
+1 973 401 5357
gary.lynch@marsh.com
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