Understanding the forest industry

Forest industry from an insurance point of view

What are some of the positive trends in the industry?

“Awareness of risk management in the forest industry is increasing significantly, which is a very positive trend. I believe this new level of awareness goes hand in hand with the fact that claims costs are also rising. Furthermore, the delivery time of new machinery and various equipment has increased to a level never seen before. This means that when a company experiences a machinery breakdown, they may face a longer standstill period than previously. I believe the severity of this risk has sparked the incentive for our clients to analyse loss prevention work more carefully. One additional positive trend is that the maintenance of machinery has improved over recent years.”

What are some of the more negative trends in the industry?

“Another part of loss prevention that does not receive the same level of attention, relates to the redundancy solutions. A client operating without redundancy at their mills, for example, have a so-called one-line set-up. This one-line set-up creates a vulnerability in the entire supply chain of the operation, as when there is a machinery breakdown it can have costly consequences for the client’s business. We experience a tendency of prioritising, meaning to build one large mill to increase capacity, rather than paying attention to the redundancy plan. In an ideal situation, you would have redundancy all the way, as the alternative creates high dependency on one line of machinery to keep the business going. This is linked to having the correct business interruption cover and understanding the importance of this cover.”

What would be your key advice to clients?

“Good advice is to keep track of your indemnity periods and to do quarterly forecasts. This will help to foresee whether there is a need for longer indemnity periods and broader cover. What we have experienced among clients is that the indemnity periods have increased from 12 months to 18 months, and at the moment some clients are even talking about 30 months. In other words, if you experience a loss, it can take up to two years, or sometimes even more, to reinstate operations to the previous level.”

What are some of the emerging risks in the forest industry?

“Cyber risk is one of the emerging risks to take into consideration, as the severity of the attacks are continuing to both develop and increase, hackers are constantly finding new ways of attacking, and each attack looks different every time. In addition, the growing number of catastrophic natural events has proven that natural hazard risks are on the rise. It will become increasingly important to consider the impact of land use, extreme weather, and natural hazards when assessing regional risks.”

Any other highlights regarding risks in the forest industry?

”There are many new risks related to the transformation to renewable energy sources and solutions. At If Insurance, we perceive this to be a positive transformation, and we work by our client’s side every step of the way. However, there are specific risks that should be taken into consideration, and these include the risks relating to the installation of solar panels on the roof of a paper mill, or to the implementation of wind energy solutions, for example.”