In today's sagging economy, businesses often operate with razor-thin margins in order to keep the doors open. But what happens when the lights go out for an extended period of time? The doors might close for good if there's no protection against losses caused by utility outages.
Most small businesses are unprepared for power outages, says a 2008 survey of 451 small business owners commissioned by Emerson Electric Power. Nearly 80 percent of those surveyed experienced a power outage in 2007, yet only 39 percent had back-up power sources. Another sobering statistic: 42 percent of companies experiencing a power outage that year had to shut up shop during the outage. No wonder that the U.S. Department of Energy estimates that power outages cost commercial and industrial enterprises over $80 billion annually.
It's not only power outages from overhead transmission lines that cause so many problems. There are three other types of utility interruptions that can cause havoc: underground transmission, such as for natural gas; communication services, like the phone and Internet; and water supply. If you’re without any of those for more than a day or so, your business can really suffer.
Make sure you’re covered
Business property insurance and business interruption insurance covers your costs if an unexpected event, such as fire, a windstorm, or even vandalism damages your property and forces you to close for a short time. What it doesn’t cover are any losses your business sustains from a utility interruption, which can result from events occurring off your premises, such as a windstorm, water main break or gas leak.
That's when utility interruption coverage becomes so important. Basic business interruption insurance and property insurance can be expanded to include this coverage with two specific endorsements: Utility Services – Time Element, and Utility Services – Direct Damage.
How utility interruption insurance works
Let's say severe winds knock down a power line, plunging you into darkness, or a water main is broken at a construction site nearby, cutting off your water. Depending on your business, your ability to stay open and functioning could be compromised. In this case, Utility Services – Time Element insurance would cover your losses, including loss of income and expenses, up to a predetermined time limit or until the power or water service is restored. This coverage is an extension of basic business interruption insurance.
The Utility Services – Direct Damage endorsement becomes an extension of your property coverage. It provides protection against damage to your property resulting from an interruption of any of the utility services named in the policy as a result of a covered cause, such as a windstorm. For example, when the electricity is restored following an outage, a power surge could damage your computers or cash register systems.
Practical insurance for everywhere
While utility interruption insurance is critical in areas where there's a higher risk of damaging storms, such as coastal areas, it's a recommended coverage for virtually any business, anywhere. In Dallas, for example, there are ice storms, and power lines can be down for days when coated with ice and summer storms in the Midwest can be just as catastrophic as a hurricane.
There was a Texas grocery store that was damaged by the winds of Hurricane Ike in 2008. While damage to the roof and building was covered, the business did not have power outage insurance to pay for the losses to the food and products ruined by the loss of power. The grocery store would have had another $200,000 in coverage if they had that endorsement. Storms like Ike don't come around very often, but when they do, it can be devastating.
For more information about Nationwide's utility interruption coverage or to request a free, customized quote, call us at 972-215-7308!
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HelpInsureDFW and Nationwide has many online resources to help you prepare for the worst and reduce your losses from damaging winds, flood waters and other perils. Explore our website to learn what you can do to protect your business from wind damage, water damage or flood.