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Underwriting Forestry Equipment
Insurance Companies writing physical damage on forestry equipment continue to suffer from frequent and high dollar fire claims. Many are seriously considering their continuing participation in this class of business and without a marked improvement in loss ratios, are likely to join the ranks of those insurers who have already withdrawn from the market.
In 1983, when this writer started insuring forestry equipment, rates were generally two to three times higher than they are today. The average loss was $40,000, with the highest insured unit valued at less than $100,000. The situation today is dramatically different. Overcapacity has increased competition resulting in significantly lower premiums, admittedly to the short term benefit of loggers. With rates at the lowest they have been in 5 years, average losses exceeding $60,000 and individual machine values reaching $300,000 to $400,000, insurers now face very different circumstances.
The pricing cycle shows no sign of imminent improvement and so we are faced with rating structures that cannot be sustained for the forseeable future. The markets that survive this difficult period will be those who are committed to the forestry industry long term and we are pleased that these are exactly the insurers that we currently represent.
However, we must continue a close partnership with loggers in an attempt to prevent fires or at least limit their impact if we are to offer a stable, long term market. Our common goal should be to provide consistent premium levels with modest annual increases; not the huge price fluctuations we are now experiencing.
Moving towards this target, Santee Risk Managers is working with the insurers we represent to establish a minimum standard of fire protection for our policy holders. We have brought in the expertise of Firefreeze, the company who developed Coldfire - a revolutionary fire fighting product initially used in racing cars but now being utilized on logging equipment – and their affiliated company Coldfire Super Systems to encourage the use of the Coldfire product on three levels – fire extinguishers, Coldfire concentrate that can be added to water tanks but specifically a new on board system with bottles feeding nozzles located throughout the engine compartment that can be activated, either automatically or by the operator from the cab at the first sign of smoke or flame.
While some insurers have offered credits for the installation of such loss prevention measures, it is now more a case that without this on board system, particularly on high valued Skidders and Fellerbunchers/Processors, we may not be able to offer insurance at any price.
There is obviously a cost involved in implementing such recommendations, but in the long term it is this writers view that unless we all; insurers, manufacturers, dealers and loggers, work together to improve loss prevention and control, then we may be headed towards the distinct possibility that coverage will become unaffordable.
This is not a new concept for insurers. Just as fire is the main hazard for forestry equipment, theft creates the same problem for jewellers. Who would write a policy for a jeweller covering theft if the jeweller did not have an approved safe for overnight storage?
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