Planned power shutoffs could affect about 70,000 customers across 29 California counties this week. Insurance brokers in the state say businesses should prepare for a financial risk that standard business interruption coverage may not address.
The outages by Pacific Gas & Electric (PG&E), which are scheduled for Wednesday through Saturday, are intended to reduce wildfire risk during dry and gusty conditions. They follow shutoffs affecting about 12,200 customers across 17 counties the previous weekend.
California’s preventive power cuts are not new. The state’s Public Utilities Commission issued its first guidance for utilities on public safety power shutoffs in 2012. PG&E’s 2019 shutoffs included an event affecting more than 700,000 customers, which the commission described at the time as the largest in California’s history.
PG&E later reported that it carried out six shutoff events affecting about 650,000 customers in 2020 and five affecting about 80,000 in 2021. It reported no events in 2022 and two targeted events in 2023.
The latest warnings raise a significant question, particularly for small to mid-sized businesses: can a utility’s preventive decision to cut power trigger business interruption insurance when the business itself has suffered no physical damage?
Speaking to Insurance Business, Obie Scott, Associate Managing Director, Sacramento at Burns & Wilcox said he had consulted carrier partners, a parametric insurance partner and the brokerage’s claims advocate. In his discussions, he found few current options for covering losses from preventive shutoffs.
“The short answer is that I don’t think there’s a lot in this space right now to cover that loss, because it’s a totally different type of loss,” Scott said. “In my opinion, many insurance contracts don’t have the language to cover it.”
Seeta Bhandari, vice president and branch owner at All Solution Insurance Agency in San Jose, warned that small business owners may assume lost income from a forced closure will be covered. This leaves businesses facing lost revenue alongside ongoing costs such as payroll and rent. Restaurants may have to discard spoiled food; manufacturers can face delays and equipment costs; and healthcare, cold storage and other electricity-dependent operations may have limited ability to keep running.
Bhandari described a restaurant client that lost frozen meat after a power outage lasting more than 24 hours. “Unfortunately, the loss was not covered,” she said.
“Most standard policies require physical damage to some property caused by a loss. If the power is shut off as a precaution and there is no physical damage, there may be no coverage.”
Bhandari added that some policies may include utility service interruption coverage, but its terms and limits matter. Coverage may apply when damage to utility equipment causes an outage, for example, while a preventive shutoff could be treated differently.
Scott noted that businesses may receive advance notice of a planned outage, but that does not guarantee they will know how long it will last or what it could cost them.
“Clients may not be thinking about whether it will last two hours or 24 hours, or what’s going on,” he said.
The gap highlights the importance of a broker’s review of a client’s operations and policy particularly important, according to Scott. “Sometimes brokers provide the insurance requested without asking, ‘What kind of losses could we be looking to protect against?’” he said. “This loss would need to be spelled out.”
Bhandari also urged brokers to discuss what triggers business interruption coverage and explain the limits of utility interruption endorsements, particularly with clients in wildfire-prone areas.
Many clients focus on damage to buildings, inventory and equipment when buying insurance, she said, without considering what happens if they have to close for a day or several days.
Parametric insurance has not yet offered an obvious answer for the businesses. Though Scott noted that his conversations did not establish that no such coverage exists anywhere, the carriers he approached, including E&S partners, did not have a clear solution available.
However, he questioned whether the economics would work for smaller firms, citing minimum premiums for some products that start at $25,000. A restaurant might weigh that expense against the cost of backup power or the potential loss of refrigerated inventory, Scott said. The case for a product could change if outages become longer or more frequent, but businesses and insurers would need a clearer way to estimate likely downtime.
Bhandari advised businesses that have experienced outages to document their financial losses and review their policies before another shutoff occurs. “Brokers should also help clients understand potential coverage gaps before an outage occurs, rather than after a claim is denied,” she said.
Scott concurred, stressing that brokers can also help clients prepare operationally for disruptions, even when coverage is unavailable. “That’s another way for a broker to act as a trusted adviser and help the client,” he said.
