Small business insurance and power outages

As a year, 2011 has been one of the worst on record for weather-related claims. There were fierce ice storms starting the year, followed by some of the worst tornadoes and hurricanes we’ve ever seen. This October, records have been broken with a major snowstorm hitting the northeastern states. In some areas, power has been out for more than two weeks as overstretched power companies struggle to repair utility wires brought down by trees and ice. Of all the states, Connecticut is the hardest hit with more than 835,000 outages.

This is not a direct criticism of the power companies. Each company is responsible for the maintenance of thousands of miles of wire. Inevitably, trees grow close to the wires and it’s not always economically convenient to trim back all the threatening branches. So, when snow turns to ice, the weight can bring down young and old trees alike. Cutting and clearing the trees and then restringing the wires takes time even in perfect working conditions. As the winter conditions persist, delays are inevitable. The decision of Connecticut’s Governor Dannel P. Malloy to hold an inquiry into the slow response is pure politics. Equally, the suggestion the state might take action through the courts is unlikely. Actually proving malfeasance by the power companies will be difficult.

It’s going to take weeks before we have a clear idea of the extent of the losses. No business can confidently carry a loss of production or sales lasting more than one week let alone two. In some cases where the raw materials are perishable, the losses have been two-fold, e.g. food retailers, restaurants, and food processing and manufacturing companies. It’s ironic food that should be kept chilled or frozen can be lost even though the weather remains cold but, with hygiene concerns, businesses cannot take food out of refrigerators and bury it in the snow. The only companies that see a positive benefit are businesses that can clear the fallen trees and keep the roads clear. To give you a clue as to the scale of the losses, the claims are already greater than those following Hurricane Irene which dumped vast amounts of water on the Northeast.

So as we approach what could be another severe winter, now’s the time to check your business interruption insurance. Remember, one of the standard preconditions of a claim is that your own business premises should have been damaged. If a hurricane passes close by and leaves your property flooded, this entitles you to claim. But if the weight of ice brings down utility wires some distance away, there’s no damage — simply an absence of power. Once you ensure you can claim, you need to think carefully about what is to be included in the cover. This could be loss of profits, the expenses of moving to another site where there is power, replacement of lost stock, and so on. Talk through the implications for the premium rates with your small business insurances advisor. You should aim to keep the business going without having to lay off staff subject to the cost of the cover. Look carefully at your location. How quickly has local power company restored power after an outage? How much is the additional business insurance cover worth?

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