Indian Blackout a 'Wake-up Call'

Companies operating in emerging markets should check their coverage for power interruptions.

An unprecedented blackout of half of India that left more than 610 million people—almost a tenth of the world’s population—without power has exposed the shockingly poor electrical grid in the world’s second-largest nation. It also exposed the inadequate insurance coverage most global companies have for such potentially disastrous events.

“In general, U.S. firms operating abroad are not well-covered for power-outage-related service interruptions,” says Jeff Phillips, a partner at risk management, forensic accounting and loss advisory firm Dempsey Partners. Most companies, he says, don’t even know what kind of coverage they have paid for.

Most companies operating in the developing world have business interruption insurance coverage, says Schweers, but whether those that suffered losses as a result of the blackout—either directly or because of interruptions in their supply chain—will recover any damages depends on the types of disruption their insurance covers and the fine print in their contracts. For example, he says, as many companies discovered following the Fukushima nuclear disaster, business interruption policies often cover only direct losses, and not contingent losses caused by the shutdown of third-party suppliers.

“A lot will depend on the cause of the disruption,” Phillips adds. For example, he says that if the first wave of blackouts across India was triggered by a deliberate load-shedding action by a utility, the recovery of losses might be excluded by a policy that is limited to “accidental occurrences.” On the other hand, if the second wave of the blackout was caused by a surge as power was restored, which then blew out a transformer, losses from that point forward might be covered.

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