INSURANCE COST FOR LOGGERS: IT’S MATH, NOT MAGIC
INTRODUCTION: Have loggers been experiencing higher insurance rates (Workers’ Comp, equipment, liability) recently? Are some insurance companies dropping logger clients and planning to stop insuring loggers completely? What insurance “rumors” are reality? This Technical Release summarizes a presentation the author, Jimmy Locklear of Forestry Mutual Insurance, delivered at FRA’s September 27, 2013 Appalachian Region Fall Meeting in Norton, Virginia.
GENERAL FEATURES: In reality, insurance rates for logging risk declined in most Southeastern states over the last 20 years, including the states where Forestry Mutual does business: North Carolina, South Carolina, Virginia, and Tennessee. The decline has mostly been due to the professionalism of loggers, many of whom understand how loss prevention through training, awareness, and accountability can impact their insurance rates. Here is a summary of the past, current, and expected future situation within the various insurance categories.
Fig. 1: A written/active/enforced safety program pays, as this
Forestry Mutual Insurance (FMIC) example shows (NC
mechanized logging is code 2709 and non-mechanized is 2702).
Workers’ Compensation - For mechanized logging in NC, SC, VA, and TN over the past two decades, the use of mechanized equipment and the continued decline in chain saw use for felling and delimbing has reduced the risk of injury to workers. Safety awareness training offered by programs such as the NC ProLogger, VA SHARP Logger, SC TOP Logger, and TN Master Logger has also helped to reduce the frequency of injuries. Additionally, the number of loggers with Workers’ Compensation coverage has increased, which has provided more premium to pay those claims that do occur.
However, “the magic is running out” for mechanized logging in some states. As more insurance
carriers who are not familiar with logging risk entered the business, they discovered that some
Workers’ Compensation rates were well below levels necessary to sustain solvency. Expect rates
to increase going forward, because the cost of claims continues to increase, and insurance
underwriters have tightened their requirements. Loggers with “Experience Modification Factors”
of 1.00 or higher have been finding it harder to obtain lower pricing.
Loggers in the central and southern Appalachian Region who still run non-mechanized
operations now find a smaller pool of loggers paying Workers’ Comp premium, combined with
an aging workforce and an insurance industry with fewer carriers willing to write policies for
non-mechanized logging. So the insurance outlook for non-mechanized logging in mountainous
regions is cloudy, at best.
Inland Marine - For loggers who have a very good loss history for equipment, the average rates for medium to large schedules have declined by close to 50% over the last 20 years. The key is for loggers to keep equipment clean and to maintain it properly. Conversely, inland marine insurance has become very expensive or impossible to get for loggers with equipment losses; chippers (fire) are becoming a major concern for carriers, too.
Fig. 2: Inland marine insurance average rates have declined
significantly for loggers with good loss histories . . .
General Liability Insurance - General liability insurance rates have generally been stable over the last 20 years for loggers with good records. It is important for loggers to have “broad form” endorsement in their general liability insurance policies. Loggers’ general liability policies with the broad form endorsement should provide coverage for:
- Accidental over-cut beyond tract boundaries.
- Logging equipment causing personal/property damage.
- Power line damage/loss of business compensation.
- Loading and unloading causing personal/property damage.
- Mud on highway causing auto accident.
- Limited pollution coverage (if available).
- Fire damage as result of logging operation.
General liability insurance is a must and in reality is a bargain when considering the risk liability exposures present to a business. The estimated general liability insurance annual premium for a four-man logging crew is approximately $1,500 to $2,000 per year. General liability insurance also can include provision of legal representation and can cover both contractor and subcontractor. (Note: Any business that utilizes contractors or subcontractors should make sure that those “subs” provide proof of coverage prior to performing work.)
Business Auto/Vehicle Insurance - Log truck insurance rates have generally declined over the
last 20 years, and truck liability and comprehensive coverage for companies with good loss
histories has been 30-50% lower, mostly due to the following:
- Pre-trip walk-around inspections.
- DMV checking trucks more often.
- Safer trucks being used now.
- Better load securement.
- Mandatory driver drug testing.
- Driver hours of operation limited.
- GPS technology helping monitor drivers.
- More carriers willing to cover log trucks.
The challenge with trucking insurance, of course, is that the news media publicizes accidents with trucks, and there are many lawyers who target trucks for large lawsuits in accidents. While the liability associated with trucking is growing and trucking insurance is starting to increase, it is also getting harder to find and keep good drivers in our industry. The solution to trucking insurance problems is not an easy one. One key to keeping this insurance rate affordable is implementing a strong safety program.
Fig. 3: . . . but have increased greatly for loggers that have losses.
CONCLUSION: Some insurance companies have indeed decided to drop logger clients or get out of the business of insuring loggers. All indications are that insurance rates are going to increase in the near future—and maybe significantly. All lines of insurance coverage will be affected by these increases. Here are some other reasons why logging insurance costs may be going up for some logging businesses:
- Workers’ Comp – higher payrolls or production.
- General Liability – higher payrolls or production.
- Inland Marine – higher equipment values.
- Auto/Truck – higher vehicle values.
- Individual logging operation’s negative loss experience.
- Logger feels the need to protect assets more completely.
- Insurance requirements by mills for higher limits and coverage that are sometimes hard (very costly) or impossible to get.
So what can the forest industry do? All segments of the industry must realize that insurance
issues impact the entire wood fiber supply chain, and that we all need to work together as a team.
Furthermore, it is important for loggers and the industry as a whole to grasp the “math, not
magic” concept. In other words:
- Loggers should continue to implement active safety training and monitoring programs.
- The level playing field issue. If all loggers and wood producers who haul to facilities have appropriate insurance coverage, that will help stabilize insurance programs.
- Mills can recognize and reward loggers/wood producers who have well-insured operations and a well-trained workforce.
Insuring the logging industry is vital to the forest industry’s future. Protecting workers and other valuable assets should be a priority for all involved.
Jimmy Locklear, Business Development Manager
Forestry Mutual Insurance Company
P.O. Box 91467
Raleigh, North Carolina 27619
FRA STAFF COMMENT: To download a PDF of Jimmy Locklear’s complete presentation, visit the “Communications” tab at www.foretresources.org, select “Papers & Presentations,” and, following login, select 13p07 in the 2013 archive.
The North Carolina Forestry Association is producing a video version, which will become part of NCFA’s ProLogger Continuing Education Program. A DVD of this continuing education module will be offered for sale in the near future and will be advertised in an FRA Bulletin.
Appalachian/Southwide Region Manager