The fire which forced the closure of Heathrow Airport and affected more than 200,000 airline passengers world-wide, is a timely reminder of the need for businesses to use a specialist broker to ensure sufficiency of insurance cover is in place.
Risk managers should seek specialist advice about the breadth of insurance options available, not just the standard/off the shelf business interruption insurance, but more bespoke arrangements that are more fit for purpose.
Some 1,351 Heathrow flights were either cancelled due to the fire in a substation or forced to land elsewhere with a potential loss of revenue amounting to £4.8 million per day. According to figures from the airport itself, Heathrow handles nearly £200billion worth of cargo annually, which translates to goods valued at £543million travelling through the hub daily.
Most commercial property/business interruption policies are designed to insure loss of revenue/profits stemming from physical loss or damage at the policyholders own premises, provided the cause of the damage was by an insured peril, for example, a fire, storm or accidental damage.
Many business insurance policies contained small sub-limits, of which some provide contingent cover at other locations. The Heathrow fire at a third party utility/substation is an example of this scenario. Also, political violence perils are not always covered such as Sabotage & Terrorism, unless separate policies have been arranged.
Mark Dutton, Executive Director at W Denis, explained: “Those policies that give small sub-limit extensions for this type of event may not be adequate for two reasons – is the sub-limit sufficient enough and are the perils insured wide enough?
“Traditional policies often include small contingent business interruption (CBI) limits for loss or damage at utilities, but the question for those facing potential problems is will this cover be sufficient. Also what if the cause was politically motivated, e.g. sabotage or terrorism? “
The Heathrow outage is the latest in a series of aviation system failures in the UK. In 2023, an air traffic control malfunction at Britain’s National Air Traffic Services (NATS) cost airlines over £100 million ($129 million) and raised concerns about infrastructure reliability
There are warning that the Heathrow fire signposts other UK infrastructure concerns that need to be addressed. Simon Gallagher, Managing Director at UK Networks Services said: “Almost all UK critical national infrastructure has these vulnerabilities. Very few have feeds from multiple transmission substations.
“We advised another airport that while they think they have resilient electricity supplies, their ‘back up’ high voltage cable actually runs in the same trench as the main supply, massively reducing their resilience.
“High Impact Low Probability events cannot all be totally eliminated, but it is worth identifying where there ‘pinch points’ are, so emergency plans can be put in place.”
W Denis are one of the largest independent insurance brokers in the UK and arrange competitive insurance solutions for businesses Worldwide. To discuss this further with a broker at W Denis, please make arrangements with Daniel Moss at [email protected] or on 0044 (0)113 2439812.
