Canadian Underwriter

Branching Out in the Forestry Sector

August 19, 2014   by Steve McQueen

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If an industry falls in the forest, does it make a sound? What if it rises again?

The insurance industry should be listening closely for rumblings from Canada’s forestry sector, which is vertical again after a long stint on its back. The tree business is modernizing—and providing new opportunities for insurance brokers across the country.

In the economic downturn of the mid-2000s, a reduced demand for newsprint, increased global competition and a strong dollar conspired to throw Canada’s forestry sector into crisis. Many processors and mills were forced to shutter, and more roles in harvesting, milling, processing and manufacturing were at risk.

Now, out of necessity, forestry companies are making their way out of crisis by modernizing, creating an opportunity for brokers to capitalize on the sector’s recovery. Driven in part by steady growth in global demand and an aggressive transformation agenda, the industry is developing new products and services, as well as updating its well-worn approach and practices, in an effort to adapt to changing markets. The industry has begun to move away from traditional products towards more innovative and higher-value bioproducts, including bioenergy, biomass and bio-plastics. These products have become growth drivers, and position the industry for the future.

As companies identify and develop markets for innovative forestry products that are higher up the value chain, Canada’s insurance brokers and providers are well positioned to capitalize on key trends.

Modern equipment: Advancements have made today’s logging equipment safer than ever, along with much of the machinery used in processing. These advancements contribute in part to safer work sites, which translates into improved risks for underwriters. Additionally, these advancements could result in new product lines, tailor-made to address the industry’s advancing technology. Brokers can add value by helping clients to understand the intricacies of their policies: Are repairs covered for off-brand parts only? How is the valuation done on their equipment?

The rise of sub-contractors: Many brokers are looking beyond major companies for new accounts. Large players are outsourcing production to smaller, niche companies and individuals with local knowledge and resources. These more nimble operators tend to favour new, modern equipment, which offers improved risks for underwriters (many large forestry companies require that their contractors use such equipment). Brokers can help forestry companies and sub-contractors by identifying and closing gaps in coverage between all the parties involved.

Importance of the environment: In addition to protecting forestry clients against commercial, professional and employment liabilities, brokers need to consider the environmental risks of forestry operations. Without the right coverage, hazards related to storage tanks, oil spills and other pollution liabilities can result in delayed production. That can leave processors and contractors responsible for fines, penalties and clean-up costs. Forest-product companies rely on transportation to bring their materials to market. If products are involved in an event that causes environmental damage, organizations may be held liable. Brokers need to consider how absolute liability and strict liability will factor into the risks their forestry clients are exposed to.

Environmental contractors: Many forestry companies rely on the expertise of environmental contractors and climate-change consultants for support with remediation and the management of invasive species. The contractors are usually guided by rules and regulations issued by government agencies; operating within these regulations exposes contractors to the risk of significant fines and penalties. Accordingly, separate coverage for environmental contractors may be required to protect against claims relating to natural resources damage that goes above and beyond the coverage seen in most commercial general liability and pollution policies (bodily injury, property damage and clean-up costs). A best-in-class package will provide risk management solutions and combine protection for natural resources damage, and fines and penalties coverage.

Not just logs anymore: With increasing government and industry support to encourage the production of higher value forestry products, including biomaterials and next-generation building products, brokers should look for business development opportunities beyond the first stage of log production. The need for more specialized coverage related to the forest products industry is expected to grow, particularly in the areas of biomass and bioenergy. As the forestry industry continues to transform, Canada’s emerging bio-economy represents a significant opportunity for brokers and providers to establish a unique expertise. 

Steve McQueen is managing director, Atlantic region, for Burns & Wilcox Canada.

Copyright 2014 Rogers Publishing Ltd. This article first appeared in the July 2014 edition of Canadian Insurance Top Broker magazine.

This story was originally published by Canadian Insurance Top Broker.