The challenges of insuring the forestry sector in Canada are well known and long-standing.

The second half of 2021 will continue in this vein for an industry that has been grappling with a tough market for many years, Aon said in a mid-year report on commercial lines underwriting.

The situation is even worsening: “Available capacity in the market has decreased, with some markets withdrawing entirely from the forestry sector,” the report reads.

The analysts add that many domestic and international insurance companies writing this class of business have found 2020 to be a “very costly” year. Despite significant rate increases beginning in the second half of 2019, many insurers' year-over-year results were not profitable in the forest products sector.

“Lead markets that were previously offering 25 per cent capacity are now advising that they are reducing their line to 15 per cent” the Aon brokers note.

When it comes to insuring their own property, the situation is even worse. Forestry companies can expect a protection rate of 0.75 at best. It can climb to 2.00 for distressed accounts.

In liability, Aon brokers say rates are up 10 per cent to 15 per cent. Deductible and retention limits have risen by 35 per cent to 50 per cent for umbrella and excess capacity coverages.

“Insurance companies are putting more emphasis on deciphering which accounts are worth supporting and which to not renew, making it more important than ever to start planning 90-120 days prior to renewal,” the Aon report continues.

 London market still present  

On a rare positive note, the London markets are still willing to underwrite forestry risks in Canada. They may even provide 20 per cent to 25 per cent of the capacity for a given risk, “but may not always offer the most competitive terms,” the Aon report mentions.

Challenges for forestry companies are plentiful, the brokers add. 

Insurers should be aware of increasing log costs, and Canadian forestry companies should seek to expand into other markets to sell their products. On top of that there is the risk of supply disruption due to climate change, and cyber risk linked to sawmill automation. Climate change is also intensifying the frequency of disasters such as floods and bush fires, which hinders access to natural resources.

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