Risk round up
Jo McIntosh, New Zealand Tree Grower May 2018.
It seems the forest industry came through the last fire season well, with only a handful of small fires. Early indications were that summer 2018 would be challenging with very hot, dry conditions early in the season but wet weather quite literally dampened things down. In fact, one or two people might have thought it ironic that they had fire insurance on their standing timber policy when we were hit by multiple cyclones.
I think a quiet fire season was a very good thing for the industry. It enabled the merger of the rural fire fighters and urban fire fighters to progress without too many significant forestry challenges. The merger of New Zealand’s fire services, bringing together more than 40 separate organisations, over 600 fire forces, more than 12,000 volunteers and approximately 3,000 paid staff into a single new organisation, was never going to be easy. Several forest owners still have some concerns around rural fire management. A quiet summer gives everyone the chance to take stock and prepare for the future.
As usual Mother Nature has had the last say and after much focus on fire, the experience was that most forest losses in the last 12 months were from wind and landslips caused by storms. It certainly seems from my chair that picking what the weather is going to do has become harder and whatever the weather does seems more extreme. What does that mean for your insurance?
Consider your specific risks
The first recommendation is to consider what the main risks to your trees are. When you consider this, I suggest you think about your location and what is relevant to you in your region. Look at the history of loss in your part of the country and the weather trends. It is also very important to think about the value of your trees and what value you would need or want a claim to be calculated on to ensure you have placed your policy with the correct sum insured values and limits.
Fire is the main peril covered under a standing timber policy but over the last few months some of the other cover that you can purchase under a standing timber policy has become more relevant. For example, weather landslip is optional, but extends your insurance policy to cover loss of trees as a result of the descent of earth and rock due to heavy and prolonged rainfall.
Along with this, we recommend you also take re-establishment cover which extends your policy to cover associated costs such as clean-up, removal of debris and, if relevant, replanting. It is important at this point to highlight that insurance under a standing timber policy covers the loss of your trees within your forest location. It does not extend to cover third party property damage and there have been some recent cases where that type of loss has been highlighted.
Minimising the effects of weather
You may have seen photographs from the Tasman Region following the effects of Cyclone Gita. Pictures have shown logs downstream in neighbours’ properties, a real problem for those affected. Some of this damage looks to be linked to forestry. Discussions with several foresters around New Zealand recently has indicated that many have their own thoughts on this sort of event. Some feel that planting practices have changed and that the areas affected were planted many years ago in steep-slope topography that would not now be planted. In addition, foresters also now have larger boundary margins where they do not harvest, especially near waterways.
Others highlighted that the geography makes this sort of event occur when there is significant rainfall, regardless of the use of the land. In fact, in most cases forestry protects people from loss whereas bare land or grass land would have been worse. It does seem that looking from the outside this is an area which forestry needs to review and understand more to ensure that they minimise effects during significant weather problems.
When it comes to insurance for these problems, it is not easy. There are two policy phrases which may come into play − public liability and statutory liability. As with all liability claims, the devil is in the detail and the policy response comes down to the circumstances of the loss.
Hopefully all of you will have public liability insurance which responds to claims from third parties where you are legally liable to pay for damage to third party property. The policy also pays for legal defence costs. But for this type of weather damage, are you legally liable? I would say that most liability insurers would argue that you are not, unless there was some negligence on your part such as the careless or negligent placement of debris, or knowing that trees or debris are in a bad state and ignoring their condition
If you are held liable by your neighbours, the policy will defend you, and most insurers will do this in a commercial manner to protect your relationships. In reality they will not just pay an amount if you are not legally liable. That might not be the response you are after. Most of us aim to have good working relationships with our neighbours. Generally, people sort these concerns out without the involvement of insurance.
However, it is more likely a statutory liability policy would respond if the claim was brought by a statutory body. For example, the local council may lay a charge against you under the Resource Management Act. An individual, such as an affected neighbour, generally cannot bring a statutory prosecution. They would rely on bringing a civil claim for damages which, as noted above, generally speaking relies on negligence.
These types of events may not sit easily under insurance and foresters will want to be sure that they always have best practices in place to minimise the effects. No one wants angry neighbours and potentially uninsured clean-up costs.
Wind a constant risk for trees
The other peril that we have seen most often in the last 12 months is wind. I often hear people say that they do not require wind insurance as they will simply salvage the wind damage to offset any loss. That might work for larger operators, especially in second rotation plantings.
However, it also relies on several factors being in place including good roads for access, cost and availability of harvest crews and the type of wind damage being salvageable. Often the reverse is the case and damage is in back blocks where there is no access, timely access to harvesters is difficult and expensive and the damage to trees is variable with some so badly damaged there is no viable salvage. As with weather landslip cover, having a comfortable limit for re-establishment is recommended as often much of the cost is associated with removal of debris and replanting.
Who knows what the summer of 2019 will bring in terms of fire risk, but for now it is a good time to consider how to minimise your fire risk. For smaller woodlot owners it is often difficult for you to know what is reasonable and what best practice looks like.
The good news is that the NZ Forest Owners Association are currently finalising National Fire Management Guidelines and once completed, these will be available on their website. The guidelines focus on reduction, readiness, response, recovery and public education. If for example you are engaging a harvest crew and you want to make sure they are following good practice, the guidelines will provide a template which you can refer to.
They also provide some practical measures you can take such as checking boundaries for summer vegetation which easily carries fire, such as gorse. If you find this problem, consider reducing the risk by mowing, mulching, grazing or over sowing. You can also check that any mobile plant has spark arresters and carry adequate and tested fire extinguishers. Another action is mapping forest access points, listing equipment and people available for fire-fghting and arranging for Fire Emergency New Zealand staff to come on site and become familiar with the estate. The guidelines will include a lot of sound advice on ways to minimise fire risk. By following these guidelines and carrying adequate insurance, you will go a long way to managing the challenges that Mother Nature throws.
Aon has an insurance scheme for NZFFA members and in support, pays a contribution to the NZFFA. Jo McIntosh is an Executive Director of Aon and specialises in insurance for forestry and horticulture.