Temperatures near and in the triple digits have scorched the U.S. Midwest, Northeast and parts of Canada this month, accompanied by blackouts, extreme weather and other heat-related headaches.
On July 19, violent thunderstorms in Michigan cut power to a half million people in the Greater Detroit area. Earlier that day an unexplained explosion and fire at a Madison, Wisconsin, power station knocked out electricity during the city’s popular Maxwell Street Days shopping event, closing businesses and keeping would-be patrons at home.
New York City has been hit especially hard: on July 13 a blazing 13,000-volt cable sparked a blackout that left 73,000 customers in West Manhattan—including tourist hot spots Broadway and Times Square—without power for several hours. That outage came just as a heatwave descended on the city, causing even more service interruptions. Sweltering passengers were stranded on subway platforms and many people were trapped in elevators. The heat wave wrapped up on July 23 with severe thunderstorms, heavy rain, and flash floods that poured into New York City’s subway stations and closed major thoroughfares.
The hazards extreme heat, storms and power outages pose to individuals’ health and well-being are common knowledge, but less well known is the damage such conditions can do to businesses.
“If your company is dependent on incoming utilities, a service interruption creates a huge loss of business income for you,” said Barry Whitton, Managing Director, Burns & Wilcox Brokerage, Atlanta, Georgia. “If that is the case, you need to invest wisely in the appropriate equipment, as well as Commercial Property Insurance and Business Interruption Insurance products.”
“For instance,” Whitton explained, “if you close down a hospital for three days, that represents a different type of business interruption than closing down a restaurant for a day. The types of precautions a business needs to take and the levels of Commercial Property and Business Interruption Insurance coverage it needs depend on how critical it is for its facility to be operating 24 hours a day.”
Protecting assets amid growing threats
“All companies should make sure they are adequately insured with the appropriate coverages as it relates to their business,” said Patricia Sheridan, Manager, Ontario Property and Casualty, Burns & Wilcox, Toronto, Ontario, Canada. “Certainly, they should also have coverage for Business Interruption, Profits, Extra Expenses, or whatever makes the most sense for their business.”
Climate change has heightened the need for businesses to consider the dangers of extreme weather and power outages. The number of heat waves in U.S. cities has tripled since the 1960s. Sustained, unusually high temperatures strain power grids and overheat utility equipment, causing outages. Eaton’s annual report on blackouts in the U.S. found that the number of outages increased from 2,840 in 2009 to 3,526 in 2017, when 36.7 million people were affected by power failures.
As temperatures rise, plants and trees become drier, which makes it easier for them to ignite and spark wildfires. The area affected by forest fires has almost doubled since 1990. This summer, there have been unprecedented numbers of wildfires in the Arctic Circle, including in Alaska and Siberia. Climate change also increases the likelihood of extreme weather events.
Sheridan commented on the increase in wildfires as well as storms with damaging high winds in Canada. Indeed, so far this month a wildfire forced the evacuation of the entire population of Ontario’s Pikangikum First Nation, severe thunderstorms with large hail, heavy rain and high winds ripped through Saskatchewan, sudden torrential rains flooded roadways near Toronto, and high winds and a tornado caused widespread property damage and left more than 100,000 without power in Quebec.
Commercial Property Insurance that includes coverage for Extra Expenses, Sheridan explained, can include relocation costs. “If something happens to your office, for example, and you can no longer conduct business there, Extra Expense coverage can cover the cost to set up an office with equipment like phones, computers and everything at another location.” Gross Profit coverage, she said, “includes gross profit loss due to reduction in turnover and increased cost of working.” Such policies have a 12-month indemnity period, she added, which “allows you to build your business back up to where you were prior to the loss.” Ordinary Payroll coverage, Whitton added, “could cover the cost of paying your hourly employees who cannot work due to a shutdown.”
Minimizing losses and down time
New York City restaurants have suffered from repeated power outages, incurring losses in the form of spoiled food stores, damaged equipment and business downtime, among others. This is a common scenario, Whitton said, noting that insurance coverage is available to help. “If a restaurant loses a freezer for a day or two, all the resulting food spoilage can be covered under a Commercial Property Insurance policy that includes Equipment Breakdown coverage.”
Businesses like hospitals and manufacturing plants that depend on power to operate around the clock often purchase backup generators in addition to investing in robust Commercial Property Insurance with Equipment Breakdown and Business Interruption coverage, Whitton said.
In regions where hurricanes are common, Whitton explained, the power grid can be down for extended periods of time. “Even if a grocery store has not suffered any physical damage, without power for several days its stock will spoil. For preventive maintenance purposes, many grocery stores have generators on site.” Such precautions, he said, keep the grocery store from losing revenue and allow it to provide food and other essentials during the rush to restock supplies that follows any natural disaster.
To minimize losses during windstorms, Sheridan said, business owners should take steps such as “making sure that roofs are updated, grounds are well-maintained, (outside equipment) is tied down, and trees and bushes are trimmed to avoid damage from falling branches.”
Some Commercial Property Insurance policies, Sheridan said, can include Consequential Loss coverage as part of an extension package. Such coverage would, for example, help a restaurant owner or food distributor recoup the cost of spoiled stock due to equipment failure or service interruption.
Mitigating event exposures
In addition to interrupting regular business operations and public transportation, oppressive temperatures and power outages prompted event cancellations, most of them last minute. The heatwave scuttled the annual Triathlon and celebrity-studded OZY Fest in New York City, charity runs in Boston and Chicago, the Harvest Farm Jam and Cannabis Launch in Brattleboro, Vermont, and many other events.
The July 13 blackout in New York City forced Jennifer Lopez to call off her sold-out Madison Square Garden concert when fans were already seated and 26 Broadway performances were cancelled shortly before cast members took the stage. Though some cast members cheered up disappointed fans with impromptu street performances, there was no way to recoup the estimated $3.5 million cost of refunding tickets—a large deficit in gross weekly box office receipts.
“Summer brings unexpected storms, related blackouts and excessive heat, all of which hit at inopportune times,” said Andrea Prahl, Senior Underwriter, Commercial Insurance, Burns & Wilcox, Farmington Hills, Michigan. “Businesses need to prepare ahead of time the best that they can for these types of scenarios, which may require them to cancel, abandon, postpone or relocate their event.”
Given that many events are scheduled to take advantage of peak tourism seasons, anticipated returns on investment are considerable. Event Cancellation Insurance policies, Prahl explained, can help venues, hotel chains, transportation systems, caterers and other event-related businesses protect their investment and manage the fallout from unexpected weather and service interruptions.
Event Cancellation Insurance coverage can help policyholders manage a number of expenses, Prahl said, including the cumulative cost of organizing, running and servicing an event. “Non-appearance coverage can be purchased for events that include speakers, presenters, special guests and performers,” she said, “and full terrorism and communicable disease coverage are available as well.” Additionally, Prahl mentioned, businesses that host, sponsor and service events should invest in General Liability and Commercial Property Insurance, including Business Income with Extra Expense coverage.
In addition to purchasing Event Cancellation, General Liability and Commerical Property Insurance, Prahl added, businesses can take other proactive measures to protect their event-related investments. “To assist with emergencies and unexpected events, businesses should make a plan in advance for any scenarios that could potentially occur,” she advised. “Have an emergency fund for additional costs or charges, plan for unavoidable travel delays, and for outdoor events, secure a temporary structure that can be readily and completely dismantled and moved to a new venue if necessary.”
Many business owners fail to consider the consequences of a service interruption (or other adverse event) until after it has happened. There is insurance coverage available. The problem is that a lot of businesses do not buy it.
While Event Cancellation Insurance coverage and careful planning offer security and help recoup expenses, Prahl stresses event-related business leaders should also educate themselves broadly about the region in which their event is to take place. “Be mindful of the typical local weather, any potential weather hazards like hurricanes, possible security-related issues like terrorist threats, relevant state or local government ordinances, and any existing or potential strikes involving labor, food service, transportation or other groups essential to successfully executing the event.”
Prepare in advance
According to Whitton, Sheridan and Prahl, it is vital that business owners speak to their insurance brokers and agents to evaluate the Commercial Property Insurance and other coverage they have, and determine what coverage they might need. Every business is different, and all business owners need to think carefully about how vulnerable they are in the event of a blackout, extreme weather event or other unexpected disruption.
“Many business owners fail to consider the consequences of a service interruption (or other adverse event) until after it has happened,” said Whitton. “There is insurance coverage available. The problem is that a lot of businesses do not buy it.”