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At the height of last year's hurricane season, Ace USA of Philadelphia began offering "spin-down" insurance to cover the costs of an orderly shutdown and proper restart of heavy industry.

Though the coverage was part of Ace's well-regarded weather insurance program, demand for the product was lacking. Only a few small businesses on Caribbean islands looking to cover their evacuation risks showed any interest.

Now, however, Nathan says he is seeing more interest in the coverage. "We are trying to encourage good risk management practice," he says. "We don't want the plant managers to think about the potential costs of a shutdown." After the devastation wrought by Hurricane Katrina, there was no question that authorities in southeast Texas would order evacuations in advance of Rita, which followed within weeks of Katrina's landfall.

Houston, the fourth largest city in the United States, is also home to the largest concentration of chemical refining and manufacturing in the world. Texas chemical plants generate $15 billion worth of products every year, according to the Texas Chemical Council; the state's refineries do a comparable business.

As residents and clerical staff fled Houston, plant managers and workers began to shut down their facilities. These decisions are never made lightly, as shutting down a refinery and starting it up again are far more complex and expensive than flicking light switches.

Shutting down a plant can take days because refining and chemical manufacturing are continuous processes, unlike making cars or toys, in which separate units are assembled.

Restarting plants can take even longer. Some take a week or more to come back on-line while pipes and vessels are cleaned, seals and parts are tested, and continuous reactions rekindled.

And all of that costs money, on top of lost production. Yet most property/casualty or business-interruption coverage is contingent on actual damage.

That was the case with the plants in Louisiana after Katrina and for the plants in the Beaumont-Port Arthur, Texas, area with Rita. But in and around Houston, plants suffered little or no damage from Rita.

"Rita is definitely the talking point for this type of coverage," says Warren Isom, senior vice president at Willis Re in Philadelphia.

Ace says it is the only carrier offering such nondamage-based shut-and-restart coverage, and Isom concurs that he does not know of any others offering comparable products.

"Personally, I do think this fills something of a void," says Isom. "Individual insureds could probably get a custom contract from some other carriers, but this is ready to the market. If there is greater uptake, I am sure others will follow."

January 1, 2006

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