In today’s episode of the Dust Safety Science podcast, Will Downing, Commercial Risk Advisor at CapriCMW, goes over insurance considerations for facilities that handle or generate combustible dust. He also addresses the following:
- Some of the aspects around insuring facilities that handle combustible dust
- Some of the things the facilities themselves can do to lower their premiums or even make their policies better.
He also shares a case study called ‘Wood Product Manufacturer Success Stories From 2021’ that highlights what applying these types of concepts actually looks like. This type of educational material isn’t widely available, and it’s important for end users, the consultants who are working with them, government regulators and more.
Manufacturer Challenges With Insurance
Will explained that insurance carriers have their own engineering department and teams. Sometimes they may send them out to the site or they’ll review a third-party risk inspection report that will come through. Whether or not they’re happy with the standard of the facility will determine whether or not they will take that as well as how much they charge for the premium on it.
“It is important for manufacturers to show their insurance carriers where they are now, whether [they are] well-managed from a housekeeping perspective, have all the policies, the procedures, the protocols in place, whether that be from simple things – from onboarding employees, what type of training are they going through. If they’re more of the operational department, what does that actually look like? Have you got an effective onboarding program? What does that training manual look like? Are they really getting exposed to all the hazards that the facility does have? That type of thing. Insurance carriers are really being very selective on who they want to insure.”
He recalled that when he worked with a couple of manufacturers, they talked about how much their insurance premiums were increasing. When he asked what they were doing about it, they didn’t know how to answer. There are ways to improve risk management and impact premiums, but no one seemed to know what they were or how to implement them.
“Essentially, when a client comes to us, I say, “Here’s a long list of requirements that insurance carriers like to see. Let me know which ones you have.” These are the ones that we could start improving or working towards. Some of them don’t cost a lot of money, like writing up some more formal risk management policies and procedures so that an underwriter can see that they’re taking it seriously. We’re not asking you to buy new equipment or anything like that, [although] for some that don’t have proper combustible dust systems in place, that’s definitely a consideration that they should be looking at.”
The Importance of Independent Risk Reports
Will said that insurance carriers are looking for manufacturers to have an independent risk report or risk engineering report done at least every three years. Independent risk engineers come in as an independent third party, have a look at the operation as it is right now, and see whether or not it is compliant with all the NFPA standards and regulations. When necessary, they compile and present recommendations that the business can work towards throughout the year.
“More often than not, it’s documentation,” Will says. “We did risk engineering reports [in woodworking facilities] and they said that they don’t have a formal combustible wood dust management policy in place at the moment. It’s not to say that they’re not doing it, it’s just not there formally. One of the other ones didn’t have a formal “no smoking” policy in place. While they said (that) there’s no smoking on-site, there was nothing documented to present to an insurance carrier.”
He added that the onboarding of employees is another important item that insurance carriers like to look at.
“They might look at your HR hiring policies. Are you just hiring anyone and everyone? Are you doing background reference checks or putting them through a formal program? We have some companies out there that have graduate programs for their employees in different areas of operations. That just looks fantastic because they’ve become very familiar with all the hazards and the risks, not just within their one area but across the whole operation.”
Adopting these policies and practices takes time. While some are quick fixes, others are long-term plans. Being open and willing to make changes is the most important thing.
Dust Hazard Analyses as Insurance Considerations
“If clients have a DHA, then absolutely fantastic, that’s brilliant,” Will says.
The risk engineering report covers a wide variety of aspects, including but not limited to:
- Housekeeping and dust management
- Yard storage: is there six to 10 metres worth of space between 10,000 square foot blocks of lumber stored there?
- Light fixtures and fittings – are there any broken ones? Or are they all LED lights? We also suggest having thermal graphic scans done as well as part of the risk engineering report.
- Building construction: materials, dimensions
- Building systems: electrical systems, lighting, thermographic imaging reports, plumbing, heating systems
“They do look at a wide variety of items,” Will explains. “I think if you could have a DHA as well as a Risk Engineer’s report, that is almost like a best-in-class type of report that we could provide to the insurance carriers.”
Wood Product Manufacturers: Success Stories
Will provided an example of a success story from the case study Wood Product Manufacturers: Success Stories from 2021.
The client had a USD $50 million facility/manufacturing space. They were about to renew their insurance and were looking at about $250,000 to $300,000.That included their property, the liability, the inventory or stock, and all the equipment that was in there.
“We thought that potentially they might be getting over-charged,” Will recalls. “This facility was built in 2018, brand new sprinkler systems had been put in and they had just moved into it, actually. With fire-resistive steel construction, it was a really good space. It wasn’t packed with buildings in and around it. There wasn’t any forest firefighting exposure to it, either.
“As it was set up, they had about five or six different policies with five or six different insurance carriers at five or six different renewal dates, which can be very inefficient in terms of how the program and policy are set up.”
Their stock was covered by two policies, which was problematic: with double insurance, neither insurance carrier wants to pay out. They also didn’t have any business interruption coverage, which is one of the biggest areas that people undervalue in terms of an insurance product.
“Through the process of gathering all of the information, they provided us with all of their emergency response plans, along with their combustible wood dust management program and how they onboard their employees. We actually also got the client on a call with the insurance carrier that we wanted to get that business written with.
“[The insurer saw] that this is someone that really takes the hazards and the exposures that manufacturing facility has very seriously. They essentially offered to cover everything with increased limits and including business interruption coverage.”
Reducing Insurance Premiums
According to the report Wood Product Manufacturers: 3 Ways to Reduce Your Insurance Premiums, for a $4.5million building without a three-year risk report documentation or risk management or housekeeping, the premium would likely fall in the $90,000 range. With a three-year risk report, with documentation and with excellent housekeeping, the premium might lie somewhere around $67,000.
“Insurance carriers are looking for those people that are willing to change and are looking to improve their operations,” Will explains.
Conclusion
“From an insurer’s perspective, the best way to help people is to work with a specialist within that area,” Will says. “Being open and looking at the operations and some of the items you can implement would be another thing to consider. You should then formally document all of your good work. The insurance premiums will go down if we can improve the industry as a whole and reduce losses.”
If you would like to discuss further, leave your thoughts in the comments section below. You can also reach Will Downing directly:
LinkedIn: https://www.linkedin.com/in/william-downing-commercial-risk/
Website: https://capricmw.ca/
Email: [email protected]
If you have questions about the contents of this or any other podcast episode, you can go to our ‘Questions from the Community’ page and submit a text message or video recording. We will then bring someone on to answer these questions in a future episode.
Resources mentioned
Dust Safety Science
Combustible Dust Incident Database
Dust Safety Science Podcast
Questions from the Community
Dust Safety Academy
Dust Safety Professionals
Dust Safety Share
Companies
CapriCMW
Organizations
NFPA
Resources
Wood Product Manufacturers: 3 Ways to Reduce Your Insurance Premiums
Wood Product Manufacturers: Success Stories from 2021
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