Over the last two weeks, we have put forward the thesis that most small and mid-size businesses are underinsured and that for many, the best remedy is to own their own captive insurance company. Owning a captive insurance company enables small and mid-size business owners to blend third party commercial coverage with coverage by their captive. This blended approach results in far more robust coverage, helps overcome the “sunk costs” trade-off of purchasing insurance, and can even turn risk management into a profit center.
Within days after publishing our last article on increasingly uncertain times, large-scale calamity struck in Pakistan. And, this calamity was man-made.
On Monday, January 26, 2015, News.Sky.Com reported 140 million were left without power after a transmission line was attacked. The attack knocked out the country’s power grid. According to the report, “Up to 80% of the country’s population lost electricity in the early hours of Sunday… Authorities blamed the attack on a separatist group in the Baluchistan province in the country’s southwest.” A Pakistani spokesman commented that, “The blowing up of two power pylons in Naseerabad… created a backward surge which affected the system. It was an act of sabotage.” To read the entire article, CLICK HERE.
Pakistan is halfway around the world, but this attack shows that relatively unsophisticated militants or terrorists can produce significant destruction. In a post 9-11 world with porous U.S. borders, it’s reasonable to believe that it is only a matter of time before something similar happens here.
A terrorist attack of this nature could have a significant impact on small and mid-size businesses. Terrorist attacks could include the power grid, dams, bridges, the water supply and numerous other “soft” targets. The business interruption and other related costs posed by such an attack could be sizable. The flexibility that captive insurance companies afford their owners make them the ideal vehicle to manage risk and position small and mid-size businesses for long term survival in increasingly uncertain times.