The insurance industry's attention to the financial consequences that catastrophic climate events have on large businesses is well documented. Industry reports, financial analyses, and even media coverage all focus on hurricanes, wildfires, and floods that can cause billions in insured losses. And it's understandable - major disasters grab headlines, while losses at large firms are big enough to influence market confidence and insurers' overall risk exposure.
At the same time though, another weather-related issue is going under the radar: power outages caused by less severe, yet far more common, weather events, such as high winds, rain, and thunderstorms.
While electrical disruptions in general may not affect large businesses as severely as catastrophic events do, the impact accumulated from power outages is a problem big enough to sink small companies.
Just one event causing business interruption can seriously affect a company, leading to loss of revenue, productivity, foot traffic and reputation, all of which have a trailing effect on the bottom line.
Now, consider this happening more frequently. Right now, we're seeing weather events - wind, hail, rainfall, freeze, heat - becoming more common and affecting more areas of the country, especially as population shifts into geographies that are more at risk of being affected by these events (California's wildfires, for example). Recent data backs this up, showing power outages in the U.S. have risen an astronomical 74% over the past decade compared with the decade before that. What's more, smaller recurring power outages that are no more than 24 hours account for 90% of all outages, according to Adaptive Insurance data.
Along with these smaller climate-related events becoming more common, the U.S. consumption of electricity is projected to increase by 25% by 2030 and by 78% by 2050, all while the country's existing electricity grid continues to age.
For U.S. firms - 99.9% of which are considered small - the financial losses caused by the above combination is staggering. In fact, the Department of Energy estimates that electricity blackouts cost U.S. businesses $150 billion every year, only 60% of which is covered by insurance.
The protection gap
So why then is so much of this still going uncovered by insurers? For me, it's not that traditional insurance models are neglecting smaller, high-frequency disruptions, it's that they're simply constrained by design. Carriers must balance attritional losses with the risk of catastrophic events, the latter of which are volatile and notoriously difficult to price.
Without sufficient data or reliable modelling, many insurers either limit coverage or withdraw from certain markets altogether. For example, with power outages, food spoilage in homes is getting removed from coverage, and only kicks in for commercial businesses after more than 72 hours.
While charging market-value rates might offset the risk, premiums at that level would be prohibitively expensive for most businesses. So, the result is significantly less coverage available in traditional policies, a very real protection gap between what businesses lose and what their policies actually protect, and finally, businesses failing not from a single catastrophic event, but from accumulated losses of numerous smaller disruptions.
The shift to parametric insurance and a resilience mindset
With this imbalance clearly unsustainable, a shift is already underway, with the once-overlooked risk category of non-damage business interruption now drawing new attention. As a result, more parametric insurance providers are emerging.
While traditional models haven't been able to use real-time data (because it hasn't been available on the more granular level that data providers are starting to deliver), parametric is different.
By offering faster, data-driven payouts that require less adjudication and can better address these under-served exposures, parametric coverage is becoming the blueprint for these types of events.
This real-time data and predictive modeling, which is growing increasingly more effective, is able to create new opportunities for previously uncovered risk. If and when done correctly, it allows the insurers to collect new premiums and spread the risk across a more manageable and visible risk profile - including no moral hazard and less fraud, another feature of parametric coverage.
At the same time, businesses themselves are rethinking resilience. With federal and state resources stretched thin, companies can no longer rely on government support to bridge the gap caused by these repeated, smaller disruptions that chip away at cash flow and profitability.
Alongside steering toward adequate parametric insurance protection, the future will also likely see businesses form more formal resilience plans, which may even become a prerequisite for securing a loan, license, or certain types of coverage.
For more traditional or larger insurers, I see a future with a wealth of opportunity. Partnerships with insurtechs, which tend to be faster, more agile, and better equipped to develop innovative coverage models, will allow incumbents to deliver greater value to businesses in this changing risk environment.
Meanwhile, the excess and surplus lines market is expected to double in size. Its lighter regulatory framework not only enables more flexible product design, but also makes it an attractive space for top talent eager to shape the next generation of insurance solutions.
The bottom line here is that small businesses don't have to die by a thousand cuts. By addressing the cumulative impact of frequent, small-scale power disruptions through parametric insurance and proactive resilience planning, we can transform what has been a slow bleed into a manageable risk. This isn't just an operational challenge—it's an opportunity to redefine what effective, modern protection really means and to ensure that the everyday weather events that once threatened small businesses' survival become risks they can confidently weather and recover from.
