Is there a new demand for utility bill coverage as business losses increase?

Last August, businesses that depended on clean water lost many customers and revenue overnight when floodwaters shut down aging water pumps in Jackson, Mississippi, shutting down most of the city’s water service. I’m sorry.

And most of these businesses were not covered for losses by business interruption insurance.

When Jackson lost water service again in December, the business suffered again, due in part to freezing temperatures and burst pipes. His weekday lunch, three days after Christmas, at a popular restaurant in the heart of the downtown business district, saw only a handful of customers. A famous bookstore on the other side of town had to inform its customers that its restrooms and fountains were not working. City officials have asked residents to help find a broken water main that is causing low pressure throughout the system.

About 200 miles north of Jackson is Memphis, Tennessee, with a population of 630,000 and some areas with 100-year-old water pipes. The city endured a gradual power outage just before Christmas, with frozen pipes, low water pressure and a six-day boiling water notice, according to news reports and local business owners. This is his third time in two years.

A similar water loss story is playing out in Houston, Texas. Baltimore; Shreveport, Louisiana; Selma, Alabama. And while weather events have been a recent trigger for system outages, experts say the shutdown is ultimately the result of decades of underinvestment in infrastructure maintenance by the government. I’m here.

At the moment, the problem appears to be getting worse in the southern cities. The local government tax base has been eroded by years of exile to the suburbs. However, cities across the country are now on the list of cities facing major infrastructure problems, quickly leading to frequent losses and insurance claims for business owners.

“This is not a sign that anything is going to happen,” said Joseph Chauffer, emeritus professor of civil and environmental engineering at Northwestern University. I mean, there are ten other cities that haven’t appeared yet, but they will.”

Warning signs have been built over the years. “The nation will likely have to weather a higher-profile drinking-water pollution incident before public opinion takes action,” University of California engineering professor David Sedrak wrote for the Pew Charitable Trust in 2019. rice field.

Loss of drinking water can be life-threatening for some residents. It could also have a devastating effect on commercial operations such as restaurants, forcing them to close or trucking bottled water, ice and portable toilets to serve their dwindling patronage. To do.

And while frozen pipes may often be covered by commercial insurance, loss of water service due to flooding, loss of power, or lack of maintenance is not covered unless the policy includes a special endorsement. And policyholders are not always knowledgeable enough about insurance to be able to claim the coverage they need, experts say.

The crisis facing America’s cities will help insurers, insurance agents and brokers with what could be a frequent and costly headache over the coming months and years. , can present challenging new opportunities and potential pitfalls.

“If you can define it and agree on how to measure the risks and losses to insure, and you meet the requirements, we will sell the insurance,” said former broker and lecturer, Insurance Coverage. An expert witness on the matter.

He explained that despite the growing need to make companies aware of gaps in coverage, insurance agents may be somewhat constrained. Upselling can be frowned upon. This could essentially make agents “insurers of last resort” and expose them to lawsuits from uninsured policyholders, Tilden said. A safer approach is to reach out to potential customers through trade associations.

Vulnerable businesses also need to underwrite themselves so they can be fully insured, said the Memphis restaurant owner, who fully felt the impact of the infrastructure failure but was largely affected by business interruption insurance. said they were protected.

“My advice is to be very careful and read your insurance policy,” says Shawn Danko, owner of the Kooky Canuck restaurant in Memphis, known for its six-pound burgers.

In early 2021, Memphis experienced a widespread loss of water service after severe frost. Danko’s restaurant lost revenue for his eight days, a loss of $30,000. But it was a covered hazard and his carrier quickly paid for the claim, he said.

Danko, who is also president-elect of Hospitality TN, formerly known as the Tennessee Hospitality and Tourism Association, urged other business owners to research coverage and add support where appropriate.

“If you have to make a cut, don’t insure it. You might think you’re saving money, but if something happens, it’s not worth it,” he said. “Make sure your policy covers you in some way. If you need special endorsement, add it. am.”

Insurance agents in the Southeast say they’ve heard little from companies about changing coverage in the face of growing infrastructure threats. But Danko said many business owners may not be aware of the scope and limitations of business interruption policies.

“I know there are people getting press coverage, but they’re not aware of it. They didn’t take advantage of it after the freeze,” he said. “And their carrier never called or offered to help. No claims were filed.”

Utility loss coverage can be nuanced. Businesses can purchase off-site utility policies that cover frozen and broken pipes upstream of municipal water systems, the agent explained. Tornado strikes on pumping stations can also often be covered. However, when a city’s water system is damaged by flooding, as was the case with Jackson in August, it is not usually covered without special arrangements known as differential conditions or differential hazards. , is like a blanket policy that covers corporate property and casualty insurance.

“But these are very sophisticated techniques,” said Tilden. The average restaurateur may not know to purchase that type of instrument.

Some national restaurant chains require franchisees to purchase extensive coverage with full coverage, others do not, he noted. And even if the business policy included a loss of utility bills, the water utility could argue that the lack of maintenance in the municipal system, rather than the freeze, caused the water service to collapse. he explained Mr Tilden.

That seems to have happened in Jackson, Mississippi, after city officials said they couldn’t afford major improvements to their decades-old water system. I am reporting that I am not.

“These cities that have neglected their water systems for so long. said Ron Travis, CEO of Tennessee.

Insurance groups also say that insurance cannot cover all possible losses.

Chris Boggs, Vice President of Agency Development, Research and Education for Independent Insurance Agents and Brokers, said:

Millions of federal funds were recently set aside to tackle some of Jackson’s gigantic water problems. aims to provide some assistance to the cities of But Schofer and colleagues warn that that may not be enough, and will not fund the maintenance of the upgraded water system for years to come.

One possibility companies and insurance agents should consider is expanding the use of parametric insurance, Tilden said. Parametrics can provide a fixed amount of compensation when agreed-upon events occur, such as floods, weather events, and other disasters. He noted that parametrics are not licensed in all states and should not replace standard coverage.

But as an addition to our business policy, “This is a classic example of where parametrics have a great use.”

Above: Tap water at the Jackson Restaurant. (AP Photo/Rogelio V. Solis, File)

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