Long-lead equipment and BI: Why mitigation really matters in power claims

In power generation, big losses rarely follow a standard script.

There is usually an obvious element of physical damage: a damaged turbine, a failed gearbox, a fire in a control building. But in many of the claims we see in the power market, it’s the business interruption (“BI”) that really sets the tone. BI is increasingly driven not by how bad the damage looks, but by how long it takes to get the right equipment back on site.

Large transformers, major turbine components and key balance-of-plant equipment (i.e. the supporting systems that keep the plant running, such as pumps, fans and valves) simply aren’t sitting on shelves. They’re often built to order, with lead times stretching into many months. For some items, a year or more is no longer unusual.

With global supply chains still under pressure from geopolitical tensions, regional conflicts and the lingering effects of the pandemic, and with many new power technologies such as grid scale batteries, offshore wind equipment and high efficiency gas turbines produced in limited volumes, these extended lead times are becoming a structural feature of the market, rather than a temporary disruption.

For brokers placing power risks globally, this area is becoming increasingly important. It affects how:

• clients think about spares and resilience;
• programmes are structured around BI limits and indemnity periods; and
• claims unfold when something does go wrong

Across Zurich’s power portfolio, a common through-line emerges: choices made long before the loss, about spares, maintenance and mitigation, can make the difference between a painful event and a truly severe one.

Typical scenarios: damage today, long lead issues tomorrow

We often see the same few themes in power claims that we handle.

One common scenario is a major rotating component suffering clear, sudden damage, with the OEM and operator agreeing it cannot safely be run again. Replacement parts then come with a long-lead time, and there is no spare available on site or easily accessible from elsewhere.

The operator often responds to this by working with the OEM to explore interim repair solutions. On paper, this looks like proactive mitigation. In practice, however, it can introduce extra complexity and delay, and can later prompt debate about whether the repair route shortened the outage or inadvertently extended it when compared to waiting for a replacement.

Another familiar scenario arises when part of a steam cycle fails in a combined cycle power plant. The plant cannot run in combined-cycle mode, so the operator switches to open-cycle mode, keeping the gas turbine running to maintain some output. It is a sensible decision and helps mitigate against BI. But during that period, unrelated issues with supporting systems can surface, raising the familiar question: what is “insured damage”, meaning damage directly caused by the loss event, and what is simply operational noise, for example normal wear and tear issues that would have occurred anyway.

These scenarios differ in detail, but the underlying issues are the same:

• Long-lead components driving BI
• Operators attempting to mitigate, sometimes with mixed results
• Questions later about whether the mitigation strategy was reasonable and effective

Mitigation in practice, not just in theory

Lawyers talk about the duty to mitigate. In reality, it comes down to a simple, practical question: “Looking at what was known at the time, did the operator take reasonable steps to reduce the loss?”

When we look back at a long outage, the key questions that usually arise include:

• Could the plant have continued to operate in a different mode (for example, open-cycle instead of combined-cycle) for longer?
• Were there practical options to bring in temporary generation equipment, or to reconfigure operations, so that some output could be maintained?
• Did the decision to try a complex repair, rather than accept a long replacement lead time, genuinely shorten the outage or did it make matters worse?
• Was there a spare available, either within the operator group or from a third party, and if not, was that a conscious and documented choice?

From a broker’s perspective, this is not just academic. It can affect the:

• amount ultimately paid under the BI section of a policy; and
• strength of any subrogated claim (the insurer’s attempt to recover its outlay from the party responsible for the damage) against contractors, OEM’s or service providers

Spares: when “we’ve never had a spare” stops being enough

Another common theme is the question of whether a critical spare should have been available.

In many large power losses, the absence of a spare rotor, transformer or other major component means the operator is effectively locked into the OEM’s replacement timetable. There can also be debate over whether equipment is genuinely beyond repair, or whether a full replacement would in effect deliver “betterment”. In practice, that means the client is put in a better position than before the loss by replacing a used component with a brand new, upgraded one.

Clients often have perfectly valid reasons for not holding certain spares: cost, space, obsolescence, environmental considerations, or a belief that failure is unlikely within the remaining life of the asset.

But when the outage runs long and the BI period mounts up, those earlier choices are inevitably re-examined. The discussion shifts from “we’ve never had a spare” to “was it still reasonable, given what was known about lead times, technology and criticality?”

For brokers and insurers, the key is to help clients own those decisions proactively, rather than defend them reactively.

OEMs, contractors and the evidence gap

Alongside spares decisions, another common issue in power claims is the tension between OEM recommendations, site realities and contractual frameworks.

OEM studies and reports may conclude that replacement is essential because service life is “consumed” or because hidden damage cannot be ruled out. On closer examination, some of those studies can rest on assumptions about operating hours, start/stop cycles or temperatures that don’t fully match the plant’s actual records.

That doesn’t mean the OEM is wrong, but it does mean their conclusions have to be tested. Otherwise, both insurers and clients risk paying for upgrades and life extensions that go well beyond “like for like” restoration.

Contractors add another layer. When a contractor’s error is clearly at the root of the damage, subrogation is an obvious route. But recoveries can be constrained by:

• liability caps and exclusions in the contract;
• the scope and limits of the contractor’s own insurance; and
• arguments that the operator’s own decisions on spares or mitigation contributed to the overall BI

All of this underlines a simple point: good evidence and clear documentation of operating history, spares decisions and mitigation steps taken can make a real, practical difference once lawyers and liability adjusters become involved in a claim.

What this means for brokers, insurers and their clients

So how can brokers and insurers use these lessons in day-to-day discussions with the client?

From a claims and legal perspective, a few areas stand out:

1. Lead times and BI design

• Are the client’s BI limits and indemnity periods realistically aligned with current lead times for their most critical components?
• Have those lead times been revisited recently, or are they based on assumptions from when the plant was built?

2. Spares and resilience strategies

• Is there a clear, documented approach to spares for major equipment, even if the decision is not to hold a spare?
• Are spare parts arrangements within the operator group or at regional level clearly understood, and have they been tested in practice?

3. Mitigation thinking before the event

• Have operators considered in advance how they would run in contingency modes (for example, open cycle only), and what those modes would mean for revenue and costs?
• Is there an agreed framework with insurers for discussing and evaluating mitigation options quickly after a loss?

4. Contract and warranty alignment

Do OEM and contractor contracts, with their caps and exclusions, sit comfortably alongside the insurance programme, or are there gaps that could lead to surprises after a major incident?

These are not questions that brokers need to answer alone. They are the basis for useful three-way conversations between a broker, client and their insurer.

How we try to support that at Zurich

At Zurich, particularly in our power portfolio, more of our discussions with brokers at inception, renewal and in technical account reviews are moving away from pure pricing and capacity and towards these resilience questions.

We are prioritising the following practical steps with brokers and clients:

• Sharing anonymised insights from our claims experience on long-lead components and typical outage durations through workshop and training days with brokers and clients
• Working with our risk engineers, brokers and clients to map single points of failure and reality-check assumptions on spares and mitigation during inception, renewals and regular site visits
• Stress-testing BI limits and indemnity periods in the context of a client’s actual plant configuration and supply chain realities
• Being open to early, informal discussions when an incident occurs about what mitigation might look like in practice - not just what the policy says on paper

None of this guarantees an easy claim. Power losses are complex, and genuine differences of opinion do arise. But where these topics have been explored before the loss, claims tend to move faster and with fewer unpleasant surprises for the client.

Looking ahead

The energy system is only getting more complicated. New technologies, changing load patterns, supply chain pressures and the push towards net-zero are all reshaping how power plants are built and run.

That makes mitigation and long lead exposure more than just claims issues, they are central to how resilient a portfolio really is.

For brokers, there is a real opportunity to stand out by bringing these topics into the conversation and by working with insurers who are prepared to engage with the detail, not just the headline numbers.

From a power claims perspective, the most satisfying claims are rarely the ones where everything goes perfectly. They’re the ones where, when something has gone badly wrong, everyone around the table can say: “We knew this was a possibility. We talked about it. We now have a plan.”

If this article prompts a few more of those conversations between brokers, clients and our team at Zurich, it will have done its job.

Author

Shaun Lawler – Senior Claims Adjuster / Technical Lead for the Power Line of Business Energy, Marine and Construction Claims Team - London