Do I Need to Insure My Network?

I periodically get asked about buying insurance to cover a new fiber network, mostly asked by investors or bankers who are working with a fiber network for the first time. The assumption is that there must be insurance to protect against damage to a fiber network because there is insurance for everything.

The surprising response I give them is to not try to buy insurance for a network. If you can even find an insurance company that will insure it, the premiums are going to be far larger than you can financially justify. The reality is that fiber and copper networks and electrical grids are not easily insured.

This horrifies a banker because they are lending money for an expensive asset. So how are network owners protected against losses?

Small damages to networks are generally recovered from the party that caused the damage. If a water company or electric utility cuts a buried fiber, that utility pays for the cost of the damage. This works the other direction also, and it’s rare to build a new fiber network without damaging a few other utilities during the process. This concept carries to everybody else. If a commercial truck knocks down a pole, the pole owner tries to get recovery from the insurance company of the truck owner. If a homeowner goes awry building a new driveway and badly damages the fiber network, that homeowner or his insurance covers the damage.

Big network damage is mostly covered by FEMA. If there is a big hurricane, ice storm, flood, fire, tornado, or other major events, then FEMA funding kicks in as long as the governor of a state has declared an emergency. I have had clients get fully reimbursed from FEMA in recent years for damage caused by the western fires, damage from a hurricane, and damage from a tornado. The FEMA paperwork process is not pretty, but the agency covers the cost of damage to utility infrastructure. In fact, the two biggest things that FEMA payouts often cover are damage to buildings and damage to utilities – that’s what gets damaged by storms.

There are other kinds of damage that don’t fit these two categories. For example, a small brush fiber caused by lighting might damage a short section of a pole line but not be large enough to kick in FEMA. Utilities are on the hook and self-insure for this kind of damage. They generally send out their own crews to get the damage fixed as quickly as possible, and nobody reimburses them for something like a local brush fire.

This is not to say that insurance isn’t important. Smaller ISPs generally buy insurance for all buildings, including all of the electronics inside them. You can get insurance to cover powered field huts. It’s important to make sure your insurance policy is specific and that you add new locations to your policy since property policies are often specific by the street address of the asset being insured. It’s not mandatory to buy such insurance, and many ISPs choose to self-insure. If you borrowed the money to build a network, you might be required to insure.

Note that most of the big ISPs don’t carry insurance. They self-insure because, over the long-run, it’s cheaper for a big telco or cable company to pay to repair things than it is to pay an insurance company every year. But smaller ISPs probably don’t have deep enough pockets to pick up the tab for replacing a central office or a NOC.

When insurance is optional, you should do the math. How do the premiums paid over some period like ten years compare to the cost of replacing the asset? That math gives you a numerical way to weigh the risk of insuring or not insuring a given asset.

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