In 2013, changes in land ownership patterns and increasing interest in managing land for personal values have created new opportunities for entrepreneurs providing logging services. Equally, changes in how society views risk and responsibility for real and perceived damage require new and expanding firms to pay close attention to assuring the business is fully and properly insured. Landowners want to deal with responsible harvesting companies, and, among other things, that means a properly insured company. Adequate commercial insurance on a business is both a simple matter of self-preservation and typically part of a logging contractor's obligation to the customer.
Photo by JBTHEMILKER/morguefile.com.
Loggers seeking to understand commercial insurance have a range of resources available to them. Insurance companies themselves, the Small Business Administration (SBA), trade associations and industry magazines all provide important sources of information.
However, when it comes time to actually work up an insurance program, there is broad agreement regarding the importance of insurance agents. By way of example, both Barbara Logan, senior commercial underwriting specialist at Acadia Insurance, and Caron Beesley, a small business owner who "works with the SBA.gov team to promote essential government resources," stress the importance of selecting the right agent in designing an appropriate insurance plan.
Landowners want to deal with responsible harvesting companies, and, among other things, that means a properly insured company.
Photo courtesy of Acadia Insurance.
Logan suggests, "Start with your local agent; however, if that agent does not routinely handle business for loggers (and you should ask that question), he or she may not have access to the best insurance markets for logging business. If this occurs, try locating an agent that does have the necessary expertise by asking other loggers or using the Internet."
Beesley also points to the benefits an experienced agent brings to the table. She says, "Make sure your broker understands all of the risks associated with your business. Finding a good insurance agent is as important as finding a good lawyer or accountant."
Not a one-way street
Both women stress that the relationship between the business owner and the agent is not a one-way street.
Make sure your insurance agent understands the logging business and has access to the best insurance markets for loggers.
Photo courtesy of Acadia Insurance.
According to Beesley, an owner must assess potential risks before making important insurance decisions. "Insurance companies determine the level of risk they'll accept when issuing policies," she notes. "This process is called underwriting. The insurance company reviews your application and determines whether it will provide all or a portion of the coverage being requested. Each underwritten policy carries a premium and a deductible. A premium is the price you pay for insurance. Premiums vary widely among insurance companies and depend on a number of risk factors, including your business location, building type, local fire protection services, and the amount of insurance you purchase. A deductible is the amount of money you agree to pay when making a claim. Generally, the higher [the] deductible you agree to pay, the lower your premium will be. However, when you agree to take on a high deductible, you are taking on some financial risk, so it's important to assess your own risks before you go shopping [for insurance]."
Logan elaborates on the process: "Make sure the agent understands the logging business and has access to the best insurance markets for loggers. Bring any existing or future contracts to your meeting with your agent so the agent can analyze your insurance requirements.
"The logger should know whether his or her equipment policy provides coverage on a replacement cost or actual cash value (ACV) basis and understand what that means. The agent can explain it. This is critical when setting the values of each piece of equipment. If underinsured, it can mean a sizable penalty if there is a total loss to a machine. If overinsured, the logger is paying for coverage he will never have, since replacement cost or ACV will determine the most the insurer will pay for a loss, even if the value shown on the policy is higher," Logan explains. "A logger should consult with his equipment dealer before each renewal and give his agent appropriate changes in the values shown on his scheduled equipment so they can be reflected in the renewal policy."
In terms of deductibles, according to Logan, "The logger should ask the agent to obtain quotes at various deductible levels for property, automobile, physical damage and equipment coverage. The deductible the logger picks should be an amount that the firm could pay when a loss occurs without too much financial stress. The logger should remember that losses are not a regular event, and by picking a low deductible, he or she will be paying for that, whether there is a loss or not."
She adds, "If the logger changes the operations, adds or sells vehicles or equipment, makes changes in buildings (renovations, add-ons, etc.), or begins working in or hauling into another state, keep the agent informed so coverage can be amended if needed."
Closing the gaps
Commercial insurers like Acadia, with experience and specialized knowledge in an industry sector, can also work with agents and their clients to help reduce costs, providing targeted coverage by bundling a variety of offerings.
"Property, liability, auto and special coverages, like equipment coverage, can be bundled together into a package policy," Logan comments. "One benefit of this bundled approach is to help minimize gaps between the general liability and auto coverages. The right agent will help make sure all the coverages that are needed (either by law or by contract) are addressed, and that they properly dovetail with coverages that may not be required, but may still be important to the logger."
Loggers should know whether their equipment policy provides coverage on a replacement cost or actual cash value basis.
Photo by JBTHEMILKER/morguefile.com.
One of the most significant changes the logging industry has seen in recent years comes from the fact that logging is more often being carried out in suburban areas or within cities. That puts loggers and the public in close proximity. Agents need to be made aware of special areas a logger might be operating in to assure proper coverage is provided for the company.
"The type of logging you are involved in may affect your options, because each insurer of loggers has its own underwriting guidelines. Some insurers target only loggers that operate in rural areas, where the potential for certain losses is relatively lower than it is for loggers who operate in urban or suburban areas. Other insurers will only insure fully mechanized loggers for workers' compensation, because of the reduced loss potential compared to loggers who use chain saws," Logan explains. "Again, the agent is the best source of what coverages are needed and what markets are available to offer them."
The owner of a logging firm should, based on the nature of the business, also ask the agent about specialized insurance that might be required. Land use regulations change every day and in every jurisdiction. Thus, Logan suggests that a good discussion with an agent might include an examination of issues sometimes overlooked in the insurance equation.
"Most general liability policies on loggers include a standard endorsement that excludes coverage for all property damage from fire caused by the logger, as well as property damage to the vehicle of another during the loading or unloading process. Also, many insurers use an endorsement that either excludes or limits the amount that will be paid in the case of timber trespass. There are insurers that do not use either exclusion, so it's important that the logger's agent has access to those markets," she says.
Liability versus property: know the coverages
"Pollution losses can also be an issue. If the logger has fuel tanks not on trucks or trailers at the job site for refilling vehicles or machinery, a general liability policy providing pollution coverage may be necessary," Logan says. "In most states, the standard policy excludes pollution from such tanks. Some insurers will add coverage by endorsement; others refuse to provide the coverage at all, in which case the logger may need to obtain a separate pollution liability policy. Some loggers have fuel tanks at their garage premises, and most standard property policies provide a small amount of pollution cleanup coverage for spills on the premises covered by those policies. However, if a spill migrates beyond the insured's premises, the property policy may not respond to the cleanup or to any other liability the insured may incur."
In short, the logger and the agent should have a vigorous discussion of a broad range of issues when it comes to covering potential pollution. Mitigation costs for pollution are high, so the issue of spills should be completely investigated when arranging for insurance for a logging firm. "With respect to getting the right pollution coverage at the best price, it's again important that the logger's agent has access to the markets that will add the coverage to the standard policies whenever possible," Logan concludes.
In summing up recommended approaches to addressing the insurance needs of a logging firm, Logan recommends that company owners make sure:
1. The agent they choose to work with understands the logging business and has access to the best insurance markets for loggers;
2. That an equipment policy provides coverage on a "replacement cost" or "actual cash value" (ACV) basis and that they take steps to understand what that means should a claim be necessary;
3. That the agent is asked to obtain quotes at various deductible levels for property, automobile, physical damage and equipment coverage to identify the best insurance package that fits the company's budget;
4. That whenever changes are made to operations, equipment is added or sold, changes in buildings are made (renovations, add-ons, etc.) or the company begins to work in or haul into another state, the agent is kept informed so coverage can be amended if needed.
The owner of a logging firm should ask their agent about specialized insurance that might be required. Land use regulations change every day and in every jurisdiction.
Photo by Penywise/morguefile.com.
Loggers should also keep in mind that compliance with state and federal requirements, like workers' compensation and other forms of insurance such as health insurance, is generally not addressed as part of a package of commercial insurance. Skilled agents should be consulted for those kinds of insurances.
Insurance is not a necessary evil. It is a tool, like any other, used to help optimize profitability by protecting the logging firm from unforeseen costs. A properly insured firm can also use that fact as a business tool. Landowners are concerned about liability in this day and age, and the firm that has taken steps to be properly insured is one that has taken the professional approach needed to assure that the contracted work being conducted for a landowner is done right.
The author is a longtime freelance contributor to Moose River Media.