What to expect for lumber clients in 2022
Gain insights into the coverages that will be most pertinent for lumber and building material suppliers in the new year.
From barges backed up in the Atlantic Ocean to price escalations and labor shortages, 2021 brought its share of challenges for business owners in the lumber and building material industries. Yet the past 12 months also included some encouraging signs, giving us a clear direction on how producers can best help lumber and building material dealers reduce their risk profiles and weather the storms to come in 2022 and beyond.
The good news is lumber and building material dealers were among the first to recover from the COVID-19 pandemic following the initial round of business shutdowns in early to mid-2020. It’s easy to see why — as people needed supplies, they also needed pallets to ship those supplies. That need brought building material dealers online fairly quickly. Sawmills came back online shortly thereafter.
The ongoing supply chain headaches that tested the mettle of all industries also impacted lumber and building supply dealers. Timing is everything, and the pandemic occurred at the worst possible time for timber as many of the world’s forests were exceedingly wet, making it impossible to access the wood products needed to supply mills, retailers, wholesalers, distributors and manufacturers.
These production delays, coupled with port congestion and labor shortages, made it difficult for companies to meet the strong demand for wood products. It also led to higher prices for raw materials and transportation.
During the past year or so, we saw consumer confidence surge and mortgage rates remain competitive. Unemployment dropped during 2021 and new housing starts rebounded. U.S. Department of Housing and Urban Development and Census Bureau data released in November 2021 reported housing starts at a seasonally adjusted annual rate of 1.52 million.
That’s a significant milestone. Our industry needs 1.5 million new housing starts a year to thrive, and we haven’t achieved this many new builds since the real estate crash of 2007-08.
We also saw many companies in the wood niche transition to the next generation of leadership in 2021. Not only did sons replace fathers, but daughters replaced fathers, too. This new generation of leaders brought with them a fresh set of concerns, focusing on employee safety, work-life balance, limiting overtime hours and avoiding employee burnout. These are all topics that weren’t discussed much as recently as five years ago.
What to expect in 2022
While supply chain bottlenecks are currently top-of-mind for lumber and building material dealers, the biggest issue in 2022 will likely be the nationwide labor shortage. In late 2021, we already saw businesses responding to this issue. Because many of the companies in our industry are smaller, family-owned businesses, they’ve been able to offer their employees higher wages to help drive worker recruitment and retention.
Finding qualified truck drivers will continue to be a pain point in the industry during the new year. Not only do business leaders face too few drivers for too many open positions, but they also must navigate the evolving world of drug testing and marijuana legalization. Though many states have legalized marijuana and products made with cannabidiol (CBD), those products remain illegal on the federal level, which means use of these products is not acceptable for professional drivers who travel across state lines.
Insureds must continue drug testing programs to root out any bad actors. It’s also important for insureds to strengthen driver training programs. Inexperienced drivers will need more education, and the more a company provides them with proper training, the safer they’ll be on the road.
The driver shortage and changing regulations continue to impact the cost of commercial auto policies. As insurers become more aggressive in pricing these policies, they’re sending a clear message to their insureds: The best way to reduce costs is to implement appropriate risk management strategies. Now, producers also must be aggressive in educating their insureds on the steps they must take to reduce risk.
Putting telematics devices into vehicles and giving insureds the ability to access motor vehicle records (MVRs) are a great first step, but insureds must actually use telematics data and review MVRs continuously to make a true impact. It’s up to producers to ensure buy-in by giving their insureds the knowledge and training they need to use all the tools at their disposal.
Producers should also educate lumber and building material business leaders on loss control, helping them design a safety program specific to the work their people do daily. Part of that education should include a discussion around the specificity of any workers’ compensation claims. In short, the more details companies include in their claim submissions, the faster service they will receive.
It’s wise for producers to recommend employee practices liability insurance (ELPI) to all lumber and wood dealers. In addition, cyber liability ranks as a high area of exposure for these businesses. Producers should explain that cyber liability doesn’t just provide coverage, but also gives companies access to the tools they’ll need to have at their fingertips if and when a data breach occurs.
Additionally, producers should discuss insurance to value with their insureds. As the global supply chain crunch continues, it takes more time — and costs more money — for companies to get replacement equipment up and running. Producers should review coverage with their insureds and explore adequate business interruption limits.
While we know labor shortages and supply chain bottlenecks won’t ease anytime soon, we also know the future is always unpredictable. Producers play a pivotal role in helping lumber and building material dealers prepare for whatever comes next by asking their insureds the right questions and offering the appropriate level of coverage.
John K. Smith is president and chief executive officer at Pennsylvania Lumbermens Mutual Insurance Company (PLM). With more than 40 years in the insurance industry, he has been a part of PLM since 1998.
Opinions expressed here are the author’s own.
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