Wood Pellet Industry Insurance Risks
Fire risk within the wood pellet industry is high. While this raises numerous commercial, health, safety and environmental issues for operators within the industry, it also raises insurance questions.
By Bryan Gaston, Managing Director
Fire risk within the wood pellet industry is high. So high, in fact, that fires in varying degrees of severity have been commonplace, and are viewed by many as inevitable—simply a byproduct of the industry. While this raises numerous commercial, health, safety and environmental issues for operators within the industry, it also raises insurance questions.
Currently, there are traditional insurance options available to participants in the wood pellet industry. This includes all types of standard coverages such as property, liability, business interruption, pollution, etc. Like any insurance product when placing coverage, carriers will assess risk, review claim history (if applicable) and evaluate other factors to determine whether to place coverage, and on what terms.
The wood pellet industry is small and highly specialized. More significantly, although the use of wood as a fuel source for heating has existed since prehistoric times, wood pellets as a commercial industry is relatively immature. Options available to industry participants may evolve as the industry matures. The age of the industry, combined with numerous casualty events, a high degree of financial distress, and capacity consolidation may affect insurance trends in the industry over time. Additionally, the optimal way to insure participants in the industry may naturally evolve as the industry matures.
A possible means to obtain insight into future trends is to draw parallels to other industries or sectors. An interesting comparison to the wood pellet industry is the oil and gas industry. Whether you define wood pellets as renewable energy, forest products or by some other industry definition, there are clearly significant differences between wood pellets and oil and gas/chemicals. However, there are also similarities. Both pellets and oil and gas are commodities, involve a significant logistical/transportation component, and entail high-risk operations in remote and harsh working environments. Therefore, the oil and gas industry's insurance trends over the past 50 to 100 years may provide some insight into future insurance trends in the wood pellet industry.