Guiding the Forest Products Industry Through a Year of Big Changes
By: Continental Underwriters, Inc.
2021 was a year we won’t soon forget. We saw wild swings and record highs in lumber prices; rising commercial insurance rates; and an intense, long-lasting wildfire season. Add to that the major forces affecting the economy, especially price inflation, labor shortages and a huge increase in demand for new homes and lumber.
Through it all, we continued our work advocating for and advising our insureds, brokers and partners. Like a lighthouse in a storm, Continental Underwriters, Inc. has remained a steady guide.
Walking With Our Clients, Every Step of the Way
In the insurance industry, we like predictability. Our entire business is based on accurately predicting risk and helping clients manage their risks. But those big changes in 2021 meant being flexible — and our team stepped up to the challenge.
Understanding the impact of those changes is the first step in making informed choices with risk management and insurance. We started by reaching out to our clients and partners to ask questions about changes in property values and stock values. Having that conversation helped us all understand the risks faced in a new environment.
Many of our insureds saw great opportunities in 2021 to reinvest in their businesses. Strong profits allowed them to build new lumber mills and plants, upgrade existing facilities and prepare for 2022. Our role was in risk assessment, as we helped identify ways to minimize risks and lower insurance costs for these projects.
When a loss does occur, speed is key. Our insureds need information and expert guidance as soon as possible. That’s why we launched our Quick Response Team, which works to handle claims rapidly so that our insureds can get back to business. Anytime a loss occurs, our team reviews the details, contacts the insured and outlines next steps in hours — not days.
Taking a Look at the Road Ahead
We don’t have a crystal ball. Every day, however, our team members talk with insureds, brokers, partners and with our own internal experts about the emerging trends we’re observing in the forest products industry. Here’s our best advice for 2022.
Lumber will remain in high demand. Lumber prices hit a historic high in May 2021: just over $1,700 per thousand board feet, which was six times higher than the low we saw in April 2020. After these wild swings in supply and demand, the forest products industry has done a phenomenal job of ramping up the supply side. The demand side arises from consumer expectations and the desire to spend money. Unless the stock market or changes in interest rates throw a curveball into the economy, brisk demand should continue. The inventory of homes for sale is at a historic low even as demand rises.
We’ll all have to factor in inflation pressures. Inflation significantly affects the cost of supplies and equipment, as well as the labor costs and power/fuel required to rebuild, install and recover from a property loss. Business interruption losses might be longer and more expensive because of delays and upward swings in lumber.
We expect rates will continue to increase – but at lower levels. The overall trend over the past few years has been increasing insurance rates. This continues to be driven by losses being paid for large weather events in the billions of dollars and social inflation. The forest products industry should expect to see rates increasing – but at lower levels than the past couple of years. Numerous economic factors are also creating problems during a claim, and this can impact and drive further rate increase need. This includes supply shortages and shipping delays for parts and machinery, as well as labor shortages for trucking and contractors to do the work. Contingency planning and vulnerability assessments are valuable at this time to be prepared in the event you face these issues. Continental Underwriters also can help you assess these items and other risks that can leave you in a difficult spot. Minimizing the chance of loss is always a good strategy and preparing for what comes after a loss or interruption has become a matter of necessity in light of current events.
Invest in your people. Americans quit jobs and switched careers at a record rate in 2021, making employee retention even more important. Look for ways to retain and reward your workforce. Ask questions – and listen to their answers. Give your employees opportunities to learn and grow, and everyone on the team will benefit. This is the approach that helped build Continental Underwriters’ close-knit culture and make us one of the nation’s top insurance employers.
Prepare for bumps in the months ahead. As the stock market continues to rise, the likelihood of a big pullback also increases. Big shocks to the system can trigger recessionary responses, in which consumers and businesses retreat from the high demand seen in 2020 and 2021. We advise our insureds and partners to consider all the variables as they plan for the future. Forecasting where the world will be 12 months from now is difficult, so looking at it in smaller chunks can help us better anticipate and respond to what might come our way.
Share the good news about what you do. The forest products industry plays a crucial role in making the global economy environmentally sustainable and mitigating climate change. We are sequestering carbon, managing forests responsibly, reducing waste and generating and using renewable energy. We all need to tell this story.
Count on us for advice and guidance. The forest products insurance landscape is always shifting, and we work hard to stay ahead of those changes. Our goal is not simply to sell insurance; it’s to ensure our clients are well protected from risks and able to recover quickly when losses occur. We’re incredibly proud of the work the Continental Underwriters team has done this year to serve our insureds, brokers and partners. We believe that when you team up with the right people to do the right thing under the right circumstances, success will always follow.
Looking for personalized insurance guidance and risk assessment? Contact our team at firstname.lastname@example.org if you’d like to know more about how our team can help yours!