Covering water utility exposures through parametric insurance, a more resilient alternative to self-insured or retained risk
After recent extreme cold events of historic precedence in Texas, the United Kingdom, Ireland, and elsewhere, utilities’ exposure to weather-related business interruption has become top of mind for providers and consumers alike.
Water utilities face a spectrum of weather & climate exposures that are not addressed by traditional insurance such as underground assets, pipe networks, and significant flood deductibles. This is especially the case in the current state of changing climate and weather norms. When infrastructure fails, the result is not only the direct damage on assets but also often carries large socioeconomic knock-on effects. Notably, the impact of cold snap events on infrastructure depends on the assets’ specific location and geophysical risk exposure, adaptive capacities and resilience, and the level of economic development.
In February 2021, an exceptionally severe cold wave hit large parts of North America from Canada to Northern Mexico. It was the coldest February in more than 30 years in the US, and the cold wave became the nation’s costliest winter storm on record.
The state of Texas was the hardest hit. The sustained influx of Arctic air, with days of below-freezing temperatures, led to a catastrophic breakdown of the state’s non-winterized infrastructure network, causing shortages of electricity, gas, heat, water and food. At the peak of the outage, 4.5 million homes and businesses in the state were without power, some for several days, leading to an even greater number of business interruptions.
The 2021 Texas freeze was the most expensive winter storm loss for the insurance industry on record. Insured losses were initially pegged at $15 billion. However, the total economic loss was estimated to be between $80 billion and $130 billion.
Meanwhile in 2020, a single UK utility incurred more than £7 million to cover operating costs, compensation, and repairs following Storms Ciara & Dennis. While in 2018, UK property insurers paid out a record GBP 194 million in burst pipe claims due to the extreme cold weather caused by the Beast from the East and Storm Emma. The Big Freeze of 2010 also resulted in a Wales utility company logging 5,000 calls a day, 50 times more than their typical busy day average, all in correspondence to damaged pipes.
Descartes’ parametric solution provides utilities a tailored insurance alternative to self-insured retentions
Descartes’ parametric insurance is perfectly designed to provide transparent protection with guaranteed liquidity through fast payouts when utility operators need it most. Our parametric policies are straight-forward and completely client-tailored. Together with the client and their broker, we define the structure based on previous loss experience, system infrastructure, and risk appetite.
In our latest industry spotlight on water utilities, including a client testimonial from Northern Ireland Water’s Chief Risk Officer, George Ong, learn how parametric insurance provides utility companies a seamless, more resilient alternative to self-insured or retained risk.
Fill out the form to download the client testimonial today.
