Weather-related losses have had a disproportionate impact on the losses suffered by the global power industry, according to a report by Marsh Inc. issued Monday.
While accounting for only 12% of the total number of losses in the sector, weather events accounted for 22% of the total costs from 2004-2012 among Marsh unit Bowring Marsh's clients, according to the report by New York-based Marsh, “Common Causes of Large Losses in the Global Power Industry.”
The report analyzes 150 of the largest claims of more than $2 million during this period, on accounts placed through Bowring Marsh, Marsh's wholesale international placement division. The 150 losses totaled more than $1.8 billion, which includes settled losses and reserves for ongoing losses.
While machinery breakdown makes up 76% of the total number of losses, it accounts for 57% of total cost, according to the report. Failure of turbine blades, transformers and generators accounted for 77 of the 108 machinery breakdown losses, according to the report, or 71% of the total.
The report discusses the key loss causes — location, technology and maintenance — and how these risks should be managed.
“While weather-related impacts are subject to only limited forms of control — for example, situating control rooms on upper floors to avoid flooding and sourcing alternate supply chains for essential products — both technology and maintenance risks can be, and often are, more thoroughly managed,” says the report.
“Stressing the value of monitoring and controlling the technology employed, notably for reliability as well as efficiency, and ensuring a proper program of maintenance are clearly critical components of loss prevention,” the report states. “In turn loss prevention is essential for ensuring reputation, operating efficiency, and reduced premium rates.”
Copies are available here.
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