What is Reinsurance, and How Does It Impact Lumber Businesses?

What is Reinsurance, and How Does It Impact Lumber Businesses?
By Steve Firko

We in the lumber and building materials industry have felt the brunt of the increasing frequency and severity of catastrophic (CAT) events in recent years. On top of these events, the recent uncertainty surrounding the global markets has made transferring risk difficult, and many specialty insurers may be facing challenges when it comes time to secure reinsurance. For this Lumber Memo, we wanted to share an update on the reinsurance market, share insights into how reinsurance impacts lumber businesses and discuss what PLM is doing to protect our insureds’ policies against volatility.

To start, insurance companies will often secure their own insurance for the risk they carry to mitigate some of the risks involved. This is known as reinsurance and is essential to ensure that claims will be paid out after a major event, or other cause. The increased frequency and severity of CAT events have become a growing challenge throughout the insurance industry. Major events like the California wildfires earlier this year and Hurricane Helene in 2024 have resulted in billions of dollars in damages. Pair that with a higher cost of rebuilding, at least when compared to pre-COVID costs, and the result is clear: more claims are being filed and for greater amounts.

So, what impact do these conditions have on our industry? First, as many of you have experienced, the frequency and severity of CAT losses, coupled with macroeconomic uncertainty, have impacted commodity prices and created challenges related to insurance to value and underinsurance. This volatility has also made modeling difficult, making it increasingly challenging and more expensive to secure reinsurance, which can translate to higher premiums, more restrictive terms and conditions, and in some cases availability issues for insureds.

Fortunately, PLM has always worked to position itself as a safe investment for reinsurers. Our commitment to fostering long-term reinsurance partnerships translates into stability, predictability and, most importantly, coverage availability at a fair price for the lumber businesses that secure our policies. As volatility around the world continues to disrupt the insurance industry, be assured that we at PLM are working to protect the future of our industry and our lumber businesses.

We accomplish this through a comprehensive approach to the reinsurance process, including:

• Focusing on details when reporting our exposure projections
• Demonstrating a quantifiable response to inflation and insurance to value challenges
• Maintaining consistent, in-person visits with our reinsurers throughout the year to cultivate strong relationships and reinforce PLM’s differentiating factors
• Fostering a geographically diverse panel of long-term reinsurance sources to reduce our overall risk exposure.

As we continue to navigate macroeconomic challenges and severe CAT events, PLM is dedicated to ensuring our insureds can secure comprehensive, affordable coverage. If you have any questions or comments, please contact me at sfirko@plmins.com or by calling 267-825-9184.