Many insurance industry stakeholders face some of these challenges: rising costs, natural catastrophe risks, increasing regulation, environmental concerns, insurance availability and affordability, supply chain issues and recruitment shortages. In the logging industry, brokers and their clients can face all of them.
“A lot of the logging industry in Australia has fallen out of the risk appetite of local insurers, thus needing a placement to go overseas,” said Danielle Doyle (pictured).
Doyle is general manager of RSM Group. Her firm is the license holder for authorised representative (AR), Mobius Insurance. Together with UK based underwriting agency, ARTes Specialty, they’ve teamed up to launch a combined material damage and associated liability coverage offering for local commercial logging operations.
“It’s a combined policy that's put together to cover the machines and then the public liabilities,” said Doyle. “Usually, you would have to go to multiple markets for your machinery.”
The offering took about 12 months for the three firms to develop together, said Peter Mason (pictured immediately below), facility manager for Mobius.
Doyle said it was also informed by 30 years of industry knowledge from working with some of the timber industry’s bigger players. During that time, she said she’s observed the challenges the industry faces and also seen “the slow removal from the Australian market of the underwriters and insurers.”
Mason said his brokerage works with domestic firms that harvest both plantation and old growth forests.
“We insure hardwood logging, which is old growth logging and soft wood, which is mainly plantation type businesses,” he said.
Mason said every Australian state has a logging industry of some kind. For example, he said, the Gippsland area of Victoria has significant timber plantations and Tasmania is well known for its old growth hardwood.
One big reason for insurers’ “slow removal” is fire risks and their potential, said Mason, to cause catastrophic losses.
He said there are still a couple of smaller local insurers left that sometimes underwrite logging risks - but they don’t specialise in it.
So finding coverages, particularly for the specialised equipment used by logging firms, said Mason, can be a major challenge.
“They're [commercial loggers] operating in very remote locations and they have limited supplies to fight fires,” said Mason. “So there are a lot of restrictions in terms of controls and risk management required and that's part of why, for insurers, it’s not their favourite class of business to insure these high value units [harvesting machinery].”
The primary concern for Mason is being able to demonstrate to insurers that his logging industry customer is a “good operator”.
“We need to identify how the client operates their business and paint a picture of how the loss history has gone over five years in terms of assessing what claims they’ve had and how they’re managing their exposures,” he said.
Doyle said many of the insurers’ requirements are just the same as they would be for any business.
One insurance advantage for many logging businesses, she said, is they are often family run operations with experienced staff and a long track record in the industry. That experience, she said, can extend to even the youngest employees
“You've got kids that have grown up in that environment that are coming through,” said Doyle. “So they might be 22 but they've also got six years’ experience.”
However, the regulations around logging are getting tougher.
“Illegal logging can destroy forest ecosystems, reduces biodiversity, and contributes to species extinction,” said Kristy Louise McBain, the Federal Minister for Regional Development, during a reading of this bill. “And it costs governments and primary industries billions of dollars every year in lost revenue.”
These new rules mainly target imported timber but also aim to improve the way domestic firms test and track the origin of their local wood supplies.
Timber industry stakeholders, including some environmental advocates, have welcomed the new rules. However, Environmental Justice Australia called for the regulation to more clearly target the domestic industry.
Mason and Doyle suggested that this regulation and others are changing the way the domestic industry risk manages its timber harvesting.
“Logging operators will have to revisit how they operate, where they're allowed to harvest, whether it's the new growth or old growth forest and if its pine plantations, those types of things,” said Doyle. “These laws and regulations, when they come into effect, also offer more protections for protected species and regulators will be able to hand down higher penalties.”
Insurance Business asked, given these new regulations and also the environmental, social and governance (ESG) rules many businesses and insurers are adopting, is it harder now for a logging operation focused on harvesting old growth to get coverages compared to a logging operation focused on plantations?
“It’s probably not quite at that stage yet but when we were in discussions with the London market there was due consideration as to what this would look like and how and what the impact on their ESG would be in offering this line of insurance,” said Doyle.
She said the Lloyd’s firms backing their offering reviewed these risks at a board level with their ESG departments.
Are you a broker in the timber industry? How do you see the risks and challenges facing your clients? Please tell us below
