By Mark Crawford, Broking Director at Aon Ltd
The insurance market is cyclical and in respect of property for the last six years we have been in a soft market.
However, a word of caution before we all enjoy our summer and think everything in the property insurance sector is fine and dandy. In the last eighteen months and with added impetus during 2014 we have mounting capacity and insurance pricing issues in the waste and recycling sector.
The waste sector is a broad and growing industry in the UK, covering companies that recycle, collect, process and sell waste. Most householders now have a range of bins and bags to fill for kerbside collection and in the future households face being fined for putting rubbish in the wrong bin under proposed European sanctions to set higher legally binding targets for recycling.
So the green agenda has a high profile, but mention the waste sector to most underwriters and they are likely to see red. This is because of the fires which have been occurring too regularly in the sector can no longer be regarded as merely ‘one offs’, whereas now they are seen more as a catastrophe risk. The statistics say that during 2012/13 there were at least 52 major waste fires and during 2014 this trend has continued. The waste sector is now a distressed sector for insurance. Many of the waste fires we have seen this year have been in the suburbs of major cities including Birmingham, Manchester and Leeds. The thick black smoke which is given off by such fires can not only be seen from space, but is also getting a lot of media coverage. When a property underwriter is travelling to work and either sees the smoke or news reports it can bring on a panic attack… unless he has a waste free portfolio!
As a consequence the majority of the composite insurers including AXA and RSA have withdrawn from this business some years ago. Those insurers who have stayed in the sector including Lloyds are being very selective and seeking only to insure the better managed and fire protected risks in the industry.
Most recently we’ve seen Lloyds getting twitchy and Catlin have withdrawn from most of the waste sector at the end of March. Having met a number of waste businesses over the last two years their premiums have rocketed with the only option being touted is overseas, unregulated insurers, with lots of warranties and small print.
The last time I saw a property issue like this was the composite panel problem in the late eighties in the food industry. Then like now large fires and the fire brigades attitude that without danger to life, let the buildings burn out, saw insurance cover become very difficult to purchase.
It maybe stating the obvious but when handling large volumes of waste there is a high inception risk of fire. In garden waste there is also the risk of spontaneous combustion. At the more sophisticated end and well established parts of the sector these risks are not new and the industry has developed robust fire suppression systems both on conveyor and processing equipment and high hazard sprinkler systems in the premises themselves.
Excellent housekeeping is also critical. Insurers are paying particular attention to the storage of waste both inside the buildings and also in the yards. Many of the fires this year have incepted in outside storage areas. The throughput of waste and the capacity of premises is also a risk factor.
The consequence of this is that insurers are now becoming very selective. They will always want to survey the risk before incepting cover. On values over £3M I would expect risks to be co insured.
The client also needs specialist broking advice on the level and scope of cover particularly around stock debris removal and loss of revenue cover.
Because many of the fires are allowed to burn out, they can burn for days and even weeks. This will mean that the business is disrupted and often cannot operate. Revenues will be affected.
The water damage to waste should not be underestimated. The increased volume of the waste can add as much as three times the original mass. This makes the stock more costly to dispose of. The sums insured in this area can often be inadequate.
So the next time a property owner casually mentions he maybe leasing a building to a waste tenant, be on guard. It is going to be difficult to arrange cover. Not impossible but testing and requiring the services of an experienced insurance broker in the sector.
To join the Eddisons Restructuring, Risk and Insurance LinkedIn Group, please click here
For more information about the services provided by the Insurance Services division, please click here
Richard joined Eddisons in 2003 and has been the Managing Partner since 2012, a role that sees him lead the strategic direction and development of the business under the ownership of Begbies Traynor Group plc. Richard has been instrumental in the growth of the business which has seen turnover more than double since 2008.
In addition to his role as Managing Partner, Richard continues to play a vital role with key clients, particularly in the banking sector, where he is a trusted adviser to major high street clearing banks. Over the last eight years, Richard has been appointed LPA Receiver on many high profile properties and assists in the recovery of distressed loan portfolios.
Prior to joining Eddisons, Richard worked in the real estate division of a 'Big Four' firm where his notable assignments included the privatisation of Saudi Telecom for flotation on the New York Stock Exchange.