TODAY’S FOCUS: Storm Insurance Scarce, Expensive for Utility Companies
NEW YORK (AP) _ When Hurricane Gloria came roaring up on the Northeast last week, knocking down power and phone lines, most of the region’s utilities were not insured for damage that may run as high as $70 million.
The decision by many insurance companies to stop selling storm insurance, or to charge hefty rate increases, left utilities and their customers holding the bills for damage from once-in-a-decade hurricanes to seasonal ice storms.
Long Island Lighting Co. and Northeast Utilities, New England’s largest electric company, recently lost their ″transmission and distribution facility disaster insurance,″ which covers labor, materials, transporation and other expenses necessary to restore power systems lost to storm damage.
Both utlitities were hit hard by Gloria, which cut off service to hundreds of thousands of customers.
Emmanuel Forde, a spokesman for Northeast Utilities, said a consortium of insurers, headed by Lloyd’s of London, canceled the coverage on July 1. The utility subsequently tried to buy coverage from 17 other insurance companies. All the firms turned down Northeast’s bid.
The Hartford, Conn.-based company, which had been insured up to $10 million for storm repairs, is stuck for a repair bill that may exceed $20 million. Customers may share that cost, through higher rates.
″The state regulators will look into it to determine who will pay,″ said Forde.
Carol Clawson, a spokeswoman for Long Island Lighting, said the utility’s entire system would have to be rebuilt in the wake of Gloria. ″We have suffered more damage than any storm in our history,″ she said. State officials and analysts have put the cost at $25 million to $30 million.
Ms. Clawson said the utility recently lost its storm damage insurance after years of relying on insurance to cover the cost of winter ice storms and occasional hurricanes.
″When all power is restored we will assess the cost and make a determination on how the bills will be paid,″ she said.
Other utilities in Massachusetts and Rhode Island also reported they had no insurance.
Mary Wallan, a spokeswoman for Boston Edison Co., said the company’s 600,000 customers in the Boston area will eventually pick up the $6 million plus tab for Hurricane Gloria.
Ms. Wallan said the utility dropped its insurance coverage because of its high cost.
Southern New England Telephone, still trying to restore service to 7,900 customers in Connecticut on Tuesday, had insurance coverage on its transmission equipment. Spokesman Mike McCann said it was unlikely the utility would collect on the policy that carries a $5 million deductable.
McCann said customers would not be billed for the damages.
The decision by insurance companies to drop storm coverage or raise premiums and deductable limits follows a trend that has seen the industry become more selective, and expensive, about who it is willing to insure.
Over the past year, insurance companies have raised rates or dropped coverage to customers ranging from nursing homes to municipalities to chemical companies, all in an attempt to cut losses.
Warren Levy, a spokesman with the Insurance Information Institute, a trade association based in New York, said the industry suffered a $3.8 billion loss last year in casualty insurance, partially due to large claims.
″Some utilities, if not all utilities, will have millions of dollars of losses in a given year,″ he said. ″For the insurance companies it’s not a question of whether you will pay out on a claim, but how much you will pay.
″This turns out to be not much of a bargain for the insurance industry,″ Levy said.
Susan Roth, a spokeswoman with the Edison Electric Institute, said many utilities have dropped the increasingly expensive storm coverage.
″It’s just a matter of analyzing how much it’s going to cost you and what the risk is going to be,″ she said.
Some companies have responded to the high costs and high deductables by providing their own insurance. Commonwealth Electricity, which serves southeastern Massachusetts, now puts aside money for storm repairs - in effect, insuring itself.
Spokesman John Farnham said the company found it was cheaper to risk the chance of severe damage caused by a storm like Gloria than to buy insurance.
″For us it’s just not economically feasible,″ he said. ″We have a storm of this magnitude once every five years.″