The logging and forestry industry has suffered dramatically since 2006, with the amount of lumber being harvested dropping by half to 5 billion from 10 billion since then. Underwriters in this class agree that it has been a rough road and for agents and brokers who work in this segment, that is especially true.
“Those in industry say this is the worst recession they have ever seen and it’s so prolonged,” says Keith Peterson, executive vice president of Keith D. Peterson & Co. in Shreveport, La. “And it is compounded by the debt crisis. People are having a hard time borrowing money. You have hardwood and pine lumbermen that are facing insurance costs with less and less money to pay the bills. They are worried about the state of economy and when it will turn around.”
Agents have seen their logging industry accounts shrink.
“The agents that had a very large book of this business three years ago are looking at maybe 60 percent of what it used to be,” says Joe Davis, underwriting operations manager for Britt/Paulk Insurance Agency in Atlanta, Ga. “The combination of the soft market and the risks that have gone out of business, plus the ones not doing as much as they used to, has really cut the agents’ income. That has tended to discourage some agencies to get into the business.”
These issues, along with the fact that the lumber insurance industry has had some significant losses in the past couple years, has affected rates and reinsurance capacity.
“Lumbermen find themselves in a sort of perfect storm,” says Peterson. “They are seeing rate increases on the property side, despite a downturn in the economy, and they don’t have the ability to borrow to meet their capital needs. A sawmill wants to borrow money to buy new equipment etc., but the banks aren’t willing to lend money.”
Davis says rates are not necessarily increasing but those in the logging industry are frustrated with the already high premiums at such a difficult time.
In addition, he warns, there is huge potential for large claims from this class because of the expense of the equipment.
“The problem is logging has never been a frequency of loss business – it’s the severity of loss. The problem is physical damage losses have increased because the value of trucks has increased,” says Davis. “And that’s hard to explain. It is confusing to the customer who says, ‘I don’t have any claims, why do you want more money?'”
Tom LaBarge, also an underwriting operations manager for Britt/Paulk in Carrollton, Ga., says this holds true for all the lines of coverage the logging industry needs, especially property.
“A lot of the business aspects are run by computers now and that makes it very expensive if you have a loss,” he says. “It is a money saver now to the operator, but the loss will be very expensive if something goes wrong.”
What will it take for the logging and forestry industry to get back on its feet? Well first and foremost, say underwriters, there needs to be an improvement in the housing market.
Pulp, or paper manufacturing, has kept this business afloat during the recession, says Davis, but new construction is essential to really get the industry going again.
“Right now, things are not getting better, they are just are not getting worse,” says Davis. “The days when a lot of loggers and log haulers were going out of business – two years ago – seem to be over. The guys that have survived that wave seem to be able to stay in business. We are not seeing as many cancellations on accounts, but it is a very difficult industry to make a living in right now.”
Peterson says he has seen some signs that the housing industry is improving.
“I don’t know when it will pick up but I’m a lot more optimistic that I was this last time year,” he says.
LaBerge says that the recent storms that hit the U.S. and the rebuilding that will come from that, as well as the rebuilding in Japan, will help, but that is two to three months down the road since clean-up comes first.
Davis says the clean-up does provide some opportunity for the logging industry.
“There is so much supply of logs out there – so much timber waiting to be cut – but that will provide work for foresters to do because they have to clean it up, they can’t let the trees die and sit there or we will have a forest fire that will burn the whole state,” he says. “Someone will have to clean this stuff up.”
Peterson says the recent storms may also lead to an increase in rates that the lumber industry cannot afford right now.
“A rate increase could potentially offset some of the benefit for the lumber prices, but it wouldn’t offset it totally,” he says. “We would like to be in a position where we don’t really see any significant increases on the property side but those conditions are dependent on the market and the upcoming hurricane season.”
Keith D. Peterson & Co. recently switched its carrier from United National Group to XL, which Keith Peterson says will provide the company with better stability and solidity.
The coverage includes property, inland marine, commercial general liability and commercial auto. Peterson & Co. focuses on a wide range of businesses including cabinet manufacturers, sawmills, lumberyards and furniture manufactures, to name a few.
Peterson says the company is looking at offering insurance on stock so that companies that are shipping products overseas will still have coverage on the product. He says this is something companies have been asking for right now because they are looking for new revenue streams.
Britt/Paulk provides all coverages a logging company needs and also produced a towing storage and debris removal endorsement last year for the business auto form that provides a $5,000 limit on every occurrence. The coverage also includes a forestry operations endorsement and loggers broad form coverage.