Kurt Husar, ACE USA Specialty Products, Power & Utilities
Companies involved in power generation may need a variety of property-related insurance at any given time to protect against specific risks. There are four basic kinds of property protection, all of which are generally “all risk” policies that cover everything except what is specifically excluded. Let’s examine the four basic types:
1: Operational risk coverage is probably the most common form of insurance purchased by generating companies. Placed annually, this insurance generally covers accidents that occur during the coverage period. For example, a turbine blade failure might result in a lube oil fire. Extensions to the standard coverage are available-the two most common are business interruption and extra expense. Business interruption coverage is designed to get the insured back to its original financial position had the event not happened. Business interruption insurance does not cover all the financial considerations. An insured company may incur additional costs while trying to “get back” to the same financial position. For example, a company may buy replacement power at prices above the marginal cost to fulfill contractual obligations. Extra expense coverage would pay for those costs.
2: Builder’s risk coverage is placed before the start of construction activities and generally covers accidents that occur during construction. For example, a turbine might fall during the rigging process. Coverage is in place for the duration of construction through start-up and until commercial operation. A typical builder’s risk policy covers two phases: works, the actual construction activities, and hot testing, the transition from the construction phase to commercial operational. Additional coverage may be purchased to pay for expenses incurred if a covered event causes a delay in completion.
Operational and builder’s risk coverages require that direct physical damage result from an insured peril. The remaining two types of basic coverage, developed and pioneered by ACE USA, do not require direct physical loss but, instead, require an unplanned outage:
3: Replacement power coverage bridges the physical and financial aspects of buying and selling power by generally providing coverage when the physical generating unit is in an unplanned outage and the financial marketplace has concurrent high prices. Coverage is independent of any operational policies (such as operational risk policies) and can be tailored to meet the unique needs of the client.
4: Long-term outage coverage is a stand-alone policy that improves upon the traditional business interruption/extra expense coverage described above. The client stipulates the daily value of each covered generating unit, and those values can vary by month to more closely reflect the value of the unit throughout the year. By stipulating the value, the claims adjustment process is streamlined, significantly reducing the time to receive payment for a covered claim.
If you have questions as to whether your facilities have the specific property protection you need, consult with your risk manager or insurance broker.
Husar is senior vice president of ACE USA Specialty Products, a unit of ACE USA, the U.S.-based retail operating division of The ACE Group of Companies. He is responsible for all aspects of the underwriting management of power generation products, including business development, claims management and policy issuance.