Soaring insurance rates hit sawmill operators

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Already reeling from two tragic mill explosions, British Columbia sawmill operators are now grappling with soaring insurance costs, which have spiked because of the accidents and one underwriter's departure from the Canadian market.

Faced with steep estimates to obtain a new policy, Surrey-based Mill & Timber Products Ltd. put some operations on hold in early May while it searched for a more reasonable deal.

The company found another insurer – at a higher cost than it had been paying before, and after sitting "naked" for about a week while new coverage was put together.

"We stayed down until we got insurance," Mill & Timber spokesman David Gray said on Thursday, adding that the past few weeks been chaotic as insurers and sawmill owners scrambled to adjust to a shifting market.

After its policy for coastal operations expired at the end of April, Mill & Timber temporarily shuttered its Flavelle sawmill in Port Moody and a Richmond log-home plant. As of Monday, both plants were running.

Mr. Gray would not say how much more he's paying for insurance, but conceded it is "multiples" higher.

Two explosions in three months had put insurance brokers, underwriters and customers on edge. Uncertainty intensified after April 30, when the Lumbermen's Underwriting Alliance – which had already served notice that it was getting out of the Canadian market – told clients it was cancelling their policies.

"There was an absolute meltdown of the sawmill insurance market," Mr. Gray said. "In a market that was already sensitive because we've had two significant tragedies, this put the market in absolute disarray."

Insurance options for B.C. sawmill operators have been shrinking since at least 2010, when LUA, a major insurer headquartered in Boca Raton, Fla., announced plans to scale back its Canadian operations.

Last year, LUA said it was getting out of the Canadian market altogether, and would wind down its operations by the end of 2012.

That meant companies including Mill & Timber were going to need new policies. However, on April 30, LUA told Canadian clients it was getting out of the business immediately.

"It was our original intent to wind down our Canadian operations throughout the course of 2012," states a letter to policyholders provided to The Globe and Mail. "However, in the past three months, we have become a major participant on the two largest sawmill fires ever seen in Canada. We could never have anticipated these losses, and they have necessitated our having to make difficult business decisions including the cancellation of a large number of policies."

LUA representatives were not immediately available to comment.

The LUA decision affected about 48 sawmills across Canada, about 35 of those in B.C., said Larry Grant, vice-president of national forestry practice with Hub International, a Chicago-based insurance broker.

After the notice, insurance might remain in effect for 15 or 30 days, depending on whether LUA was the lead insurer on a given policy, said Mr. Grant, who is based in Kamloops.

The industry turmoil means sawmills are likely to face higher premiums based on factors that include location, previous insurance claims, equipment and the age and structure of plants, he said.

"To see a 100-per-cent increase on a good, clean sawmill operation isn't going to be unheard of," he said.

There have been reports that insurance costs could rise by as much as 300 per cent for some facilities, he said.

The Babine Lake Forest Products mill exploded in January in Burns Lake, killing two people. In April, an explosion at Lakeland Mills in Prince George killed two employees and injured several others.

Sawdust from processing dry, beetle-killed wood has been raised as a possible factor in both incidents.

After the second explosion, the province ordered mills to review sawdust buildup as part of a comprehensive safety inspection.

WorkSafeBC is investigating.