In 2008 reinsurers were focusing on China as the powerhouse for substantial premium growth. Malaysian reinsurers too refused to be left out in pursuing this glorious path, so it seems. Before the lunar New Year, a substantial and devastating snowstorm ravaged Hunan, Hubei, Guizhou, Jiangxi, Anhui provinces and Guangxi Zhuang Autonomous Region resulting in more than 770,000 insurance claims filed. That was a whooping USD280million worth of insurance claims. Estimated more than USD120million were reserved for claims settlement to regional electric power industries and telecommunication service providers. A sizeable amount was traceable to business interruption related losses.
The 2008 snow storms however extended over a period of nearly four weeks, and therefore, from the reinsurance perspective, could consist of multiple events.
Much of the USD140million claims reserves were traceable to damages having direct connection to transmission and distribution (T&D) lines. Approximately 330 major power lines and 96 electricity transmission towers collapsed under snow and ice loading.
This caused severe disruption to the railway system resulting in severe delays in re-supplying fuel to electricity generating stations – the result was a much heavier business interruption losses to insurers. There were more than 24,000 mobile telephone services disrupted and many become inoperable. The fixed line telephone service was also badly affected by the collapse of 150,000 telecom poles and accompanying damage to 16,000 km of telephone lines. By 11/02/08 the total economic cost to the telecom operators is estimated to have been at least USD 152.8 million.
In Malaysia, all forms of T&D covers are excluded from the treaty. Any acceptance done is on a case-to-case basis. But in China, reinsurers were willing to forego the T&D exclusion, perhaps blinded by the huge potential business volume. As a result 2008 was a bad year with 2009 a hang-over for all.
Perhaps it is appropriate if we take an educational tour of the Transmission and Distribution Lines Exclusion Clause.
T&D exclusion is outlined in most property treaty contract as: All above ground transmission and distribution lines, including wire, cables, poles, pylons, standards, towers, other supporting structures and any equipment of any type which may be attendant to such installations of any description, for the purpose of transmission or distribution of electrical power, telephone or telegraph signals, and all communication signals whether audio or visual.
This exclusion applies to all equipment other than those on or written 1000 meters from an insured structure.
This exclusion applies both to physical loss or damage to the equipment and all business interruption, consequential loss and/or other contingent losses related to transmission and distribution lines, other than contingent property damage/business interruption losses (including expenses) arising from loss and/or damage to lines of third parties provided these are not part of a transmitters’ or distributors’ policy.
For the next series on T&D, we shall look at the following diagram as we make attempt to read and understand what T&D lines exclusion clause is all about and how the wordings can affect how we underwrite business enumerating from power plant producers, telecommunication services providers and electricity supplying sectors.