POWER March 2017 - 49

MANAGING RISK
2. " 911 ... What's your emergency? " Insurance paid $17.5 million for covered damages
resulting from a May 5, 2014, fire at the Martin Drake Power Plant in Colorado Springs,
Colo. Courtesy: Colorado Springs Utilities
they have sound insurance protection. " Hurricane
Sandy was an event that affected some
of our clients. We have had clients impacted
by tornados or most recently by wildfires on
the West coast. Those are all events where
clients appreciated having AGCS protection, "
he said.
Weighing the benefits provided by the various
property insurers is certainly important,
but there are also other policy options that
must be considered. According to David Barclay,
senior vice president with the property
and casualty insurer Chubb, property and liability
policies form the heart of an insurance
program, but coverage must still be customized
depending on the insured's particular
exposures.
But the boilers back then weren't as safe and
reliable as they are today; explosions were
commonplace. In the 1850s, a boiler explosion
occurred about once every four days, according
to HSB.
Although many boiler owners simply considered
explosions-and the damage and loss
of life that resulted-as a cost of doing business,
a group of Connecticut businessmen
didn't think explosions were unavoidable.
The men formed a polytechnic club to find
a solution and what transpired was a boiler
inspection company that offered insurance as
an incentive. Today, HSB employs more than
1,200 engineers, inspectors, and technical
personnel around the globe.
The benefits provided by companies like
FM Global and HSB are quantifiable. McAdams
said FM Global has documented a
reduction in the number of losses-and the
severity of the losses-the longer a facility is
insured by the company and receives its engineering
services.
" As a mutual insurance company, our
owners are our shareholders, so we've got a
built-in bias to do what we can to take care of
our clients, " said McAdams. " With a philosophical
foundation that most large losses
can be avoided-a majority of loss can be
avoided-we utilize our engineering service
to help them prevent the potential and reduce
the severity of the potential losses that are out
there. "
Insurance Changes with the Times
Exploding boilers are much less likely today
than they were in the 19th century (Figure 1)
due at least in part to the work of companies
like FM Global and HSB, but now there are
March 2017 | POWER
new risks that were never even dreamed of
back in those days. There are also new companies
serving the insurance needs of power
plants. The increase in providers with still
solid track records has helped to keep policy
costs in check.
Allianz Global Corporate and Specialty
(AGCS)-a German-based company-offers
one example. With more than 100 years
of technical expertise in the business, Allianz
began investing heavily in the U.S. power
segment in 2003. Similar to FM Global and
HSB, AGCS offers property coverage (including
business interruption) and builder's
risk policies (including delay in startup coverage).
It, too, has a loss control program,
which incorporates visits to facilities by
qualified engineers and the creation of loss
control reports with recommendations to reduce
risks.
" We as insurers have an overview of the
because we are
whole industry
insuring
multiple clients across the whole country
and all classes of power assets, so our engineers
have access to the best practices in the
markets, " said Honorio Campos, engineering
team leader for AGCS Americas. " They
contribute by sharing those best practices as
recommendations. "
Some common items addressed by AGCS
engineers in their reports include fire protection
improvements (Figure 2), plant monitoring
upgrades, and recommendations to
protect against natural hazards. For example,
if a plant is located in a flood exposure area,
AGCS engineers can use their expertise to
propose solutions to reduce the flood risk.
Campos suggested that whenever a natural
disaster strikes, clients rest easier knowing
www.powermag.com
" Chubb can provide many insurance products
for a power producer including property,
business income, general liability, automobile,
workers compensation, environmental,
umbrella, and many others. Mid-sized independent
power producers may find having
one insurance carrier is most efficient, " Barclay
told POWER. " It is important to look for
an insurance carrier that can grow with them
as they build more projects, " he said.
Barclay
suggested
power
producers
should consider broad business income coverage
that includes " extra expense. " One argument
for such a feature is that it allows the
insured to use extra expense dollars to expedite
replacement equipment when an event
interrupts power production. It can also be
used to purchase replacement power from
third parties following an incident, thus reducing
losses and helping companies more
easily meet their customers' needs.
Plant owners must consider all sources
of business income too. Barclay noted that
many power generation operations derive
revenue from capacity payments and tax
incentives. Losses of those revenue sources
should be contemplated when insurance
policies are designed. Many large power
companies can accept higher deductibles and
purchase higher limits because of their size,
but mid-sized independent power producers
probably shouldn't assume as much risk, so
smaller deductibles are often more appropriate
for them.
Other exposure that can often be overlooked
is the risk associated with international
operations and activities. Barclay said
it's important for companies to have the
same protection in other countries as they do
at home. Environmental coverage is perhaps
a less well-known option that may be worth
considering for many power companies.
Those policies alleviate some of the risk associated
with potential damage to land, water,
and other natural resources.
Lloyd's, a London-based company that has
49
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POWER March 2017

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