Loss of revenue from power failures can be prevented

The recent three-day power failure in Bedfordview has seriously disrupted businesses in that area - and as winter draws near fears are growing that power outages will increase with the demand for electricity.

The sprawling Eastgate shopping centre is home to over 200 different stores these, as well as countless other businesses in the Bedfordview, Primrose and Germiston areas, have suffered substantial loss of revenue and additional costs. All types of businesses have been affected, from manufacturers with key production processes and service organisations that rely on telephone networks and IT, to restaurants that need fridges and freezers to be in constant good working order.

Following the Bedfordview power failure, the National Energy Regulator of South Africa (Nersa) has moved to assure South Africans that Eskom will be able to meet the countrys electricity demand this winter. A study conducted by Price Waterhouse Coopers (PWC) as far back as 2004 indicated that energy companies around world found that security of supply was a major issue. For this particular study, PWC spoke with 148 utility companies in 47 countries illustrating that this is not only a South African problem.

Guy Scott, CEO of Risk Services for Aon South Africa, suggests businesses protect themselves by re-evaluating their insurance protection and risk management procedures to mitigate against unforeseen power failures.

"Companies should begin by identifying the likely impacts and potential costs of any supply failure," says Scott. "Cover is available for businesses through a business interruption policy. 'Failure of Public Utilities' is a readily available policy extension for commercial and corporate businesses, covering the interruption of water, gas or electricity.

"As a result of the Bedfordview power failure, we have had clients request that policies be extended to cover reduction in turnover, ultimately causing a loss of gross profits. Additionally, cover can also be taken out for the loss of wages and salary," says Scott.

However, moving forward, one of the key actions for business should be the development and maintenance of a Business Continuity Management Plan. The plan should be designed to identify the mission critical activities of an organisation and develop plans and procedures that endeavour to ensure continuity whatever the circumstances may be. It is essential that existing plans are kept up to date and are tested frequently to ensure that they remain appropriate and robust.

Scott advises that the plan should include risk management procedures - for example, instantaneous switching capabilities of the electricity supply.

"Insurers will want to be satisfied that potential eventualities and the likely maximum loss that could be incurred have been identified," he says.
"Evidence of tested business continuity plans may well be crucial."

Large industrial sites should consider the interruption potential from internal distribution systems, where an on-site transformer or sub-station could be a key component. Separate breakdown cover and business interruption insurance may be required in this event.