A “Longford-style” event—where a major off-site explosion or disaster cuts off power, gas, or water to thousands of businesses—is every operation’s worst nightmare.
The good news? Your ISR policy can step up to save the day, but only if it’s structured correctly before the lights go out. Here is what you need to know about the coverage, the traps, and why your policy limits might need an urgent health check.
The Coverage: Look for the “Public Utilities” Clause
Standard business interruption insurance usually only pays out if your own building suffers physical damage. To protect against a city-wide utility failure, you need a specific extension activated in your policy: Remote Premises of Public Utilities.
This extension triggers financial recovery when an insured disaster (like a fire or explosion) hits a public supply undertaking (electricity, gas, water, or telecommunications) and cuts off your supply.
What you need to be aware of: This coverage almost always comes with a time deductible (waiting period) of 24 to 72 hours where you foot the bill entirely, and it is strictly capped by a sub-limit. If that sub-limit is too low, your payout could evaporate within days.
The Mitigation: Can You Insure Your Backup Plan?
When the grid goes down, your immediate survival plan probably involves sourcing emergency commercial generators and executing your Business Continuity Plan (BCP).
But who pays for those massive emergency generator hire and fuel costs? It comes down to when you spend the money:
- Setting up beforehand (Not Covered): Testing your BCP, paying rental retainers, or upgrading your switchboards for “quick-connect” generator access are standard business overheads. Insurance won’t cover these.
- Deploying during a crisis (Covered): The moment a covered outage hits, your ISR policy kicks into gear via two critical elements under Section 2 (Business Interruption). This is where the magic—and the danger—lies.
Why We Stress: Your ICOW and AICOW Sub-Limits Must Be Higher
During a widespread power crisis, everyone will be scrambling for the same pool of commercial generators. Demand surges, prices skyrocket, and logistical costs balloon. To survive, you rely on two types of cover, and this is why maximizing their sub-limits is absolutely vital:
1. Increase in Cost of Working (ICOW)
ICOW pays for emergency expenses (like generator hire) only if that expense directly saves a dollar of revenue.
Limitations of this cover: It is subject to a strict “economic limit test.” If renting a generator costs you $50,000 a week, but it only protects $40,000 a week in gross profit, the policy will cap your payout at $40,000.
2. Additional Increased Cost of Working (AICOW) – The Ultimate Safety Net
This is the most critical clause for a major power crisis. AICOW pays for the extra costs to keep your business running, maintain your market share, and protect your brand reputation—even if it makes no economic sense in the short term. If you need to run a generator at a financial loss just to keep a multi-million dollar client from leaving you for a competitor, AICOW pays for it.
Why we stress this is such a flexible element of cover: Because AICOW doesn’t have to pass an economic test, but insurers do push for an explanation for the sub-limit.
The Bottom Line
In a major utility crisis, a standard, baseline sub-limit for ICOW and AICOW will be chewed through in a flash by generator hire, emergency freight, and round-the-clock fuel deliveries.
When it comes to these sub-limits, “enough” usually isn’t enough. We strongly advise reviewing your policy schedule today to ensure your public utilities and AICOW limits are scaled for a worst-case scenario, not just a minor hiccup.
Want to stress-test your current limits before the grid does? Reply to this email or contact our team today for a risk and policy review.