Abstract
Large yet infrequent disruptions of electrical power can impact tens of millions of people in a single event, triggering significant economic damages, portions of which are insured. Small and frequent events are also significant in the aggregate. This article explores the role that insurance claims data can play in better defining the broader economic impacts of grid disruptions in the U.S. context. We developed four case studies, using previously unpublished data for specific actual grid disruptions. The cases include the 1977 New York City blackout, the 2003 Northeast blackout, multi-year national annual lightning-related electrical damage and multi-year national line-disturbance events. Insured losses represent between 3 and 64 per cent of total loss costs across the case studies. The household sector emerges as a larger locus of costs than indicated in previous studies, and short-lived events emerge as important sources of loss costs.
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Notes
The Insurance Services Office (www.verisk.com/iso.html) is an insurance data-collection service specialising in loss data, market data and related topics such as building code effectiveness. Their focus is on property-casualty insurance as distinct from life-health.
The National Flood Insurance Program provides coverage for power outages (including food in freezers and damages due to failed pumps) if the damage causing the outage occurs on the insured property (NFIP, 2014).
Findings of research by librarians at the Insurance Library Association of Boston, Massachusetts, and Davis Library at St. John’s University, Manhattan Campus, New York.
www.verisk.com/verisk/property-claim-services/pcs-catastrophe-serial-numbers-verisk-insurance-solutions.html, The cut-off point was $5 million prior to 1997 and $1 million prior to 1982.
Information on the duration of the outage, particularly by and within states, is remarkably scarce.
According to III, 95 per cent of homeowners had insurance vs 29 per cent for renters (www.iii.org/fact-statistic/renters-insurance). As of 2003, 32 per cent of households were renters (U.S. Census). The net effect is 74 per cent of all households (owned and rented) being insured.
Notably, the 2003 blackout represented the largest all-time number of daily claims for HSB, with the rank-ordering by state differing from that of the entire industry (PCS data for all types of insured losses). Hurricane Irene, the Southwest blackout of 8 September, and the Northwest storm on 29 October resulted in record line-disturbance claims. However, these events are rare, and the aggregate cost of small, frequent events is greater.
Insureds include over 5 million business and industry customers; 350,000 farm customers and 300,000 residential customers.
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Acknowledgements
This work was supported by the U.S. Department of Energy, Office of Electricity Delivery and Energy Reliability under Contract No. DE-AC02-05CH11231. Useful comments were provided by Joe Eto (LBNL), Robert Muir-Wood (RMS), Anthony Wagar (Willis), Howard Kunnreuther (Wharton), Tom Phillips (CARB, retired), Eric Rollison and Sharon Hernandez (USDOE) and two anonymous reviewers.
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Mills, E., Jones, R. An Insurance Perspective on U.S. Electric Grid Disruption Costs. Geneva Pap Risk Insur Issues Pract 41, 555–586 (2016). https://doi.org/10.1057/gpp.2016.9
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DOI: https://doi.org/10.1057/gpp.2016.9