The reliance on utilities—and the connections they provide—is an exposure that affects all of our clients.
Whether it’s through social media, smart phones or email, we are all more “connected” than ever. In the context of global business, supply chain exposures traditionally draw the most attention, especially within the manufacturing industry. However, the reliance on utilities—and the connections they provide—is an exposure that affects all of our clients. In a world where being disconnected often translates to lost business, understanding the exposures your clients face if they can’t receive electricity, water, etc., is paramount.
A Loss Offsite
Recent extreme weather events, like sub-zero temperatures, heavy rain or tornados, have caused a great deal of property damage around the world. Maybe your client was able to avoid a direct loss, but what if the event resulted in a loss at your client’s local service provider? Loss to property away from your client’s premises may result in an interruption of key utility that could have a huge impact to their business.
As you and your clients analyze their exposures to off premises service interruption (OPSI), some will choose to address the concern though physical solutions (back-up power, water reservoirs, etc.), insurance solutions or both.
OPSI provides valuable coverage for your clients when they lose incoming and outgoing services. OPSI coverage varies widely by carrier, so it’s especially important to understand what is covered and what is not covered when selecting the best insurance program for your clients.
Depending on the type of business your clients operate, they need to determine their specific exposure for losing various incoming services. Typical coverage includes services for incoming electric, gas, fuel, steam, water, refrigeration, outgoing sewerage, and voice, data and video (VDV).
When assessing the exposure, you and your clients will want to look at loss potential from both a property damage (PD) and a business income (BI) perspective. Consider asking your clients to assess the impact on their businesses—both from a physical damage standpoint as well as a loss of income—if they were to lose each incoming utility service. Depending on the service that is lost, the loss potential can vary widely.
Questions to Consider
Key questions to consider when evaluating OPSI coverage:
- Distance Limitation: What is the distance limitation for this coverage? Both at your client’s facility and their suppliers.
- Distribution Lines: Does the policy provide coverage for overhead distribution lines? What distance limitation applies?
- Accidental Occurrence Coverage: Does the policy provide coverage for accidental interruption of services? Or, is loss only from a discrete event covered by the policy?
- Exclusions: Are there OPSI exclusions for flood, earth movement, contingent BI or unnamed locations? Does the client’s supplier have exposure to flood or earth movement?
Standard OPSI Deductibles
When evaluating OPSI deductibles in the market, there are several options available:
- Straight dollar deductible
- Qualifying period deductible: Period for which a service must be interrupted—generally 24 – 48 hours—before the policy will respond. The loss will then be calculated from the time of interruption.
- Waiting period deductible: Period for which a service must be interrupted—generally 24 – 48 hours—before the policy will respond. The loss will then be calculated after the waiting period has been satisfied.
Qualifying and waiting period deductibles are fairly common, as insurers want to reduce their exposure to frequent losses due to brief power outages, but provide valuable coverage in a long term loss of service.
Affiliated FM’s Approach to OPSI
Affiliated FM takes a unique approach to OPSI. First, we do not put any distance limitation on service providers. This, coupled with no standard exclusion of overhead transmission lines, provides distinct coverage for OPSI anywhere an interruption occurs. Second, we provide coverage for accidental interruption of service. Lastly, we provide high limits for both PD and BI, and cover these separately. This expands policy coverage beyond covered cause of loss to include any accidental events that may occur at a supplier’s location.
Due to this broad approach, we underwrite OPSI coverage on an account-by-account basis. Our policy has a standard exclusion for VDV, earth movement and flood, but these can be underwritten when we have the right information. For more information on Affiliated FM’s OPSI coverage, contact your Affiliated FM production underwriter.