Are We Facing a Coverage Crisis?

Are We Facing a Coverage Crisis?
By Steve Hicks

Recent announcements of trade deals and new tariffs have made the S&P 500 look like a Six Flags roller coaster. During this period of market uncertainty and volatility, many lumber and building material business owners and operators have adopted a wait-and-see attitude before addressing any needed insurance adjustments on their inventories. It is difficult to predict how high inventory values may go once we start feeling the impact of tariffs. At the same time, fearing the looming price increases, many business owners are stockpiling supplies with the expectation that tariffs will cause the value of these goods to rise, while still insuring them at their pre-tariff values. This is creating a perfect storm of coverage shortfalls that could lead many lumber business owners to find themselves underinsured in the event of a major loss.

As it is, many lumber business owners are not in the habit of assessing the value of their inventories often. This has led many business owners to underestimate the value of their inventory, property and equipment and as a result, has left them with inadequate coverage to protect their business. With the value of goods rising, the task of assessing inventory values is even more important, as a major loss in this economic environment could be financially ruinous.

Consider an $800,000 building with $700,000 worth of inventory that is insured for $1.5 million. When the price of lumber increases, not only does this mean that the inventory is underinsured, but the cost related to rebuilding has also increased with the cost of materials. It’s a compounding problem that can impact all parts of a lumber business.

By addressing property and inventory valuations proactively, LBM dealers can ensure their businesses are insured to their full value and reduce the risk of being dangerously underexposed. Here are some best practices to consider:

• Keep insurers in the loop. The days of only talking with a carrier, agent or broker at renewal time are long gone. Business owners should reach out to PLM whenever a major change impacts their business. This can include everything from new equipment purchases to sizable inventory fluctuations and significant material price shifts due to tariffs or other market conditions.
• Take stock of your stock. Conduct monthly check-ins and provide PLM with updates on inventory levels. This step is especially beneficial for companies with inventory values that fluctuate by 10% or more from month to month. PLM offers a stock reporting option that allows businesses to adjust their premiums based on real-time inventory levels. This ensures companies pay only for the necessary coverage while protecting them against unforeseen losses.
• Use the right tools. Seek the highest level of accuracy possible for your valuations. PLM provides online tools with real-time reporting options to develop estimated replacement costs based on current market conditions.

Maintaining adequate insurance coverage is a process that needs to be actively managed, rather than something that is set and then forgotten about, particularly amid market volatility. By working with a specialty insurer like PLM, which understands the unique risks facing lumber businesses, business owners can access industry-specific tools and strategies for protecting their business. Reach out to PLM’s expert claims and underwriting team to ensure your business is fully covered, regardless of market volatility. Contact us at 1.800.752.1895 or CustServ@plmins.com.