Power cuts and surges : the true costs for the local insurance industry

Abstract

Interruptions in the supply of electrical power are most often the cause of losses which are incurred by households and companies that experience them. Not only power cuts and surges may lead to the loss of machinery or equipment itself, but they may also lead to further losses which in certain situations could reach thousands when expressed in financial terms. For instance, such losses may be the result of business interruption in the case of business institutions. The study aims to investigate the role of local insurance companies when it comes to the protection of individuals and business organisations. These are both faced with the risk of losses if situations of power cuts and surges are not projected beforehand and thus, not adequately reserved for. This is the typical case since most often these market players are unaware of when power cuts and surges shall occur. The issue of power cuts and surges has become of greater importance over the past years due to the impact that such happenings have had in several countries. However, this dissertation takes a closer look at the local scenario. This study looks at a number of aspects that were tackled both from the commercial and the domestic point of view. It analyses the origin of power cuts and surges and any damages that may result therefrom. Following that, this study, through interviews conducted specifically to local insurance companies, examines how the latter cover the risk that is presented to individuals as well as organisations. Claims made by both private individuals as well as business enterprises, and which are iii related to this risk are also investigated. This analysis covers also the cost of this risk to insurers and any measures that could be taken by underwriters to alleviate such risk. Through the use of qualitative and quantitative questionnaires, this dissertation aims to gather data from individuals who were asked about any losses that they may have experienced as a result of such occurrences. Provided that we are living in a dynamic environment with constantly changing requirements, insurers will always be important in the light of this context and through thorough studies they can find ways and means as to how to minimise their costs relating to the aspect of power cuts and power surges, while constantly maintaining the welfare of their customers.