Mark McAdams, high-hazard occupancy specialist for FM Global, maintains its underwriting requirements for power generation, mining and service interruption. McAdams spoke with NU about some of the common exposures for companies in the power-generation industry and the underwriting considerations that come into play with high-voltage risk.
What kinds of exposures are most common for companies in the power-generation industry, and what appropriate protections are needed?
What separates power generation from most other occupancies is the fact that the majority of losses are mechanical breakdown, followed by electrical breakdown. Equipment that continues to evolve shall continue to present exposures worth watching. This can be gas turbines, where manufacturers continue to test the limits of technology to squeeze out as much efficiency as possible, or wind generators, where it seems that every time we increase the size we learn new ways they can break. Time-element exposures continue to evolve as well. The evolution of how revenue flows for electric supply and distribution has created a system so complex that few risk managers or underwriters can safely say that they truly understand the financial impact of an unplanned outage.
What kinds of underwriting considerations are there for electric-utility companies? What are the factors that help to determine rate for a client?
Factors for rates may include things such as client needs, type of operation, deductibles, loss history and risk quality. Substations continue to earn the dubious title of highest loss costs, followed by gas turbines and cogeneration facilities. Underwriting considerations look at how the client manages the exposures I mentioned previously. Underwriters will focus on whether the equipment is designed appropriately for its intended use and whether there are strong maintenance practices, effective management, monitoring of equipment, and protective devices in line with standards and industry best practices.
Are there any trends in coverage that you're seeing among utility companies? Any new types of policies that have emerged?
We rolled out a new version of the FM Global Advantage policy in 2011. The PowerGen Advantage included many of those enhancements, and also provides a brand new time-element coverage that was specifically created to address a rather large variety of business models found throughout the different types of power generators and around the world.
What's the current rate environment like for energy-company policies?
Our participation in energy is limited to electrical utilities and gas transmission. The rate trend in place since 2002 has reversed and is now firming. As you would expect, the impact on any given account is in accordance with risk quality, exposure to natural catastrophes and loss history.
How would you characterize capacity in this space right now?
In more high-risk occupancies, such as electrical generation and mining, the industry is seeing more care and concern in the underwriting of given accounts. More caution is being exercised in how capacity is utilized. Management interest and effectiveness, loss history, and exposure to natural catastrophes are predominant factors. In general, we are seeing the insurance industry being a lot more selective.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.