As power reliability concerns mount, brokers are being pulled into a conversation that used to belong almost entirely to risk managers and engineers: at what point does it make more sense for a client to spend capital on keeping a facility running than to keep transferring the interruption risk to insurers?
It’s a question that comes as contingent business interruption and service interruption coverage becomes more expensive or restrictive in some sectors, though falling costs and improving technology around battery storage, microgrids and backup generation are giving businesses more ways to engineer outages out of their risk profile altogether.
Paul Brown, managing partner of The Baldwin Group, told Insurance Business that as contingent business interruption in certain sectors gets more expensive or more restrictive, conversations with clients are veering away from using insurance as a solution and into, “What's the capex investment that we need to make to keep our business running?"
Electricity demand is growing while weather-related outages continue to expose weaknesses in the US grid, and it's that backdrop, Brown said, that is forcing the insurance-versus-capex conversation to the surface.
US electricity customers experienced an average of 11 hours of interruptions in 2024, nearly double the annual average of the preceding decade, according to the Energy Information Administration. Major events, including Hurricanes Beryl, Helene and Milton, accounted for 80% of those outage hours. At the same time, EIA said in January that US electricity use was on course for its strongest four-year growth period since 2000, with large computing facilities a key driver.
The combination of more demand and more outage exposure, Brown said, is pushing his clients toward a three-way decision: accept the exposure, buy insurance where sufficient coverage is available, or invest in resilience.
"Rather than putting that pressure on the insurance community, which will react with either higher premiums, longer waiting periods or lower coverage if the claims continue, do they start thinking about taking matters into their own hands?" he said.
"As energy storage technology or backup generation becomes more advanced, more efficient and potentially more affordable, do they make the investment in their own contingency planning, like a microgrid or backup generation as well?"
This decision doesn't look the same for every client, according to Brown; the divide he sees most often is between newly built digital infrastructure and older industrial facilities.
Data centers are contributing heavily to power demand, but their need for near-continuous uptime means redundancy is frequently designed into projects from the beginning; Berkeley Lab's latest estimate suggests data centers could account for 11.8% of total US electricity consumption by 2030, with scenarios ranging from 9.5% to 15.3%.
Brown said those newer assets can therefore be less vulnerable to an external grid outage than the clients he spends more of his time advising: manufacturers and processors running facilities designed decades before today's backup technologies existed.
"It's more of our clients that have been around for a while in the manufacturing business, processing, chemical processing, that didn't have the technologies available to them at the time that they built their systems 20, 30 or 40 years ago," he said. "They have to think: can the insurance company still be the solution to this, which it's less so today than it has been in the past? And is a capital investment really the solution for the future?"
For those clients, Brown said the calculation comes down to weighing a potential loss (stemming from halted production, spoiled product, interrupted processes, or idled employees) against premiums, deductibles, waiting periods and available limits on one side, and the upfront and ongoing cost of batteries, generators or a microgrid on the other.
It's a comparison he expects to come up more often as brokers get drawn further into resilience planning.
Brown's comments point to a broader shift already underway: brokers may need to go further than simply establishing whether service interruption or contingent business interruption coverage is available.
Discussions should identify how long a facility can operate without grid power, which processes cannot tolerate an outage, whether existing generators can support the entire operation or only critical systems, and how quickly losses begin to accumulate.
The economics of the outage also matter. Quantifying the cost of an hour, day or week without power can give clients a clearer basis for comparing insurance with capital expenditure. The analysis could include lost production, spoilage, restart costs, overtime, contractual penalties and downstream customer impacts, alongside the applicable deductible or waiting period under the policy.
Clients with older facilities may also need a fresh review of how their current resilience infrastructure compares with the value at risk. A backup system designed years ago may no longer be sufficient if production has expanded, machinery has changed or electricity dependence has increased.
Brokers should also be prepared for conversations involving a wider group of stakeholders. Risk managers, finance teams, operations leaders, engineers and insurers may all have a role in determining whether an exposure is best retained, transferred or reduced through capital investment.
The result is a broader advisory role around power reliability. Instead of treating insurance and resilience spending as separate decisions, clients may increasingly need to consider them together, particularly where coverage is becoming more restrictive and the financial consequences of an extended outage are growing.
