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I used to train in martial arts. One day in class, a newer student turned to the instructor. “I keep getting caught in this hold,” he said. “How do I get out?” The instructor paused, then said, “Let’s focus instead on how not to get in the hold in the first place.”
I’ve repeated this story thousands of times since then, mostly when discussing loss control with my clients. As a claims and field adjuster for three decades, I’ve seen too many businesses experience a devastating fire because they failed to fix the real cause of potential worksite hazards. In most of these cases, a relatively inexpensive repair would have prevented a multimillion-dollar loss.
Agents and brokers are responsible for continually educating their clients about potential risks so they can protect their businesses, their employees and their livelihoods. Where to begin?
Consider the hard lessons learned from these three unique claims that have impacted clients in the lumber and building materials industry. All three examples reflect the lumber industry’s biggest risk, fire, that results in a total loss.
Claim 1: The neglected boiler—Sometimes, boiler fires are unavoidable, but other times, they’re preventable. Such was the case in this multimillion-dollar claim, which stemmed from a boiler that wasn’t regularly serviced.
To curb these risks, insureds should contract with licensed professionals to maintain any mechanical equipment, including HVAC systems, water hazards and production machinery. Doing so will keep the equipment in proper operating condition. It also transfers risk to a third party in the event of a breakdown or malfunction. Here again, the cost of an annual service contract is much less than the expense of rebuilding a business following a total loss.
Claim 2: The sloppy workaround—One room inside an insured’s business had a history of flooding, leaving power cords underwater. The businesses’ employees developed a workaround, placing cords atop cinder blocks to dry them out. Had the company instead called a contractor to fix the water issue, it would have saved the business from devastation. Instead, the stopgap “solution” led to an electrical fire, resulting in a $8.8 million loss.
Workarounds like this bring multiple risks to businesses and their employees, from trip and fall hazards to electrocution. Yet these types of makeshift solutions — typically done to save money — are more common than most agents and brokers might think. Consider a lumber business that replaces a broken refrigerator with a used model to save a few bucks. The insured forgets they are inserting an aging appliance into a highly flammable workspace, adding needless risk.
Claim #3: The breaker that broke the bank—An 800-amp circuit breaker inside one company’s electrical panel kept tripping. An unqualified employee swapped it out for a stronger 1,200-amp breaker. It overheated, causing a massive fire.
The incident could have been avoided had the company hired a licensed electrician to diagnose why the breaker was tripping. Bringing in a professional would’ve also given the business the right to pursue a third-party claim had the fire been caused by shoddy repair work.
The financial savings of proper loss control would have far outweighed the cost of hiring the electrician. The repair may have cost $3,000 to $4,000. The claim ended up costing $1.5 million, not including business interruption costs and premium increases.
Helping insureds spot the red flags
In all three of these examples, a comprehensive loss control initiative could have helped prevent disaster. Three must-have elements of a comprehensive program for lumber and wood products businesses:
- Proper disposal of oily rags. When left in a pile on the floor, oil-soaked rags can oxidize and produce heat, sparking a fire. Agents should explain the risks to their insureds and offer best practices for disposal, such as placing oily rags in an air-tight, fire-resistant container and hiring a hazardous waste company to remove them.
- “Hot work” risk mitigation. Common activities like welding and grinding create open flames and sparks that can ignite flammable equipment quickly. Human error is a common thread in these types of fires. Instilling a permit system that requires workers to log “hot work” activities and review ignition-reducing best practices prior to starting the job will help insureds prevent fires and develop a culture of safety.
- Employee cyber training. Across industries, staff members are the weakest link in the cybersecurity chain. Some of the biggest risks are spoofing and payment fraud emails, where a cybercriminal pretends to be a vendor and requests updated payment information from a company employee. Too often, staff respond without a second thought, inadvertently exposing their business to a six-figure loss. Agents and brokers should encourage insureds to protect themselves by adding a second layer of verification, such as calling the vendor by phone, before sharing any payment information.
Working with specialty carriers
When insureds’ needs go beyond general business liability policies, as is the case in lumber and other niche industries, specialty carriers bring considerable value. They not only provide deep expertise in underwriting their niche, but they also know the unique coverages companies in their industry need.
Specialty carriers understand important nuances — such as whether lumber is hauled in-house or by a third party — that affect an insureds’ risk profile. They can identify policy gaps that other carriers may miss, such as state-specific code upgrades that can run as high as $250,000 and require extra coverage. And in the event of a loss, specialty carriers can guide insureds through the restoration process, helping them prevent overcharging from remediation companies.
In addition to partnering with specialty carriers, agents and brokers should sharpen their personal knowledge of niche lines. A smart first step: join industry-specific professional associations, attend trade shows and introduce yourself to loss control teams.
Agents and brokers will never get a thank you call for the loss that didn’t happen, but helping clients in specialty niches mitigate risks brings its own reward: long-term trust. Because once the root cause of a worksite problem is solved, businesses can avoid costly claims and continue business-as-usual while keeping their property and employees safe.
Joe Roche, AIC-M, PTC, is a senior large loss property claims examiner with Pennsylvania Lumbermens Mutual Insurance Company. In his role, Roche handles nationwide large losses exceeding $5 million. Roche has 28 years of industry experience as a claims and field adjuster. PLM is an industry leading mutual insurance company that has served the woodworking and building materials industries since 1895. Email Joe at jroche@plmins.com, or for more information on PLM visit plmins.com.
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