Knock on wood

Interesting facts about forests, the risks associated with them, and a little about how to insure them

Forestry insurance is still undervalued but can be a really good tool to reduce losses in the wood-processing supply chain. This year, it has become relevant especially for tourism in some countries where wildfires have created activity restrictions in specific areas.

Forest world

It is estimated that nearly 1/3 of the global population depends on forest goods and services for livelihoods, food security and nutrition. Tree stands outside forests contribute to the four dimensions of food security (i.e. availability, access, utilization and stability) by providing income, employment, energy, ecosystem services and nutritious foods.

Globally, about 1.15 billion ha of forest are managed primarily to produce wood and non-wood forest products. In addition, 749 million ha are designated for multiple use, which often include the production. Forestry is an integral part of the wood-processing industry. There is less and less natural forest on earth. On the other hand, the growing new plantations are developing very well. Many big wood-processing companies started doing vertical integration of their traditional facilities with forestry in order not to be fully dependent on external suppliers.

Source: Global Forest Resources Assessment 2020 – Key findings. Rome: FAO. 2020.

Source: Global Forest Resources Assessment 2020 – Key findings. Rome: FAO. 2020.

The area of naturally regenerating forests has decreased since 1990 (at a declining rate of loss), but the area of planted forests has increased by 123 million ha.

Forests cover nearly 1/3 of land globally. That is 4.06 billion hectares. In other words, there is around 0.52 ha forest for every person on the planet. More than half (54%) of the world’s forests are in just five countries: the Russian Federation, Brazil, Canada, the United States of America and China. 93% of the world’s forest area consists of naturally regenerating forests and 7% is planted.

Source: Global Forest Resources Assessment 2020 – Key findings. Rome: FAO. 2020.

More and more damage to forests

Forests face many disturbances that can adversely affect their health and vitality and reduce their ability to provide a full range of goods and ecosystem services. For example, about 98 million ha of forest were affected by fires in 2015. Insects, diseases and severe weather events damaged about 40 million ha of forests in 2015, mainly in the temperate and boreal domains.

The world’s climate is changing. Increased temperatures and levels of atmospheric carbon dioxide as well as changes in precipitation and in the frequency and severity of extreme climatic events are just some of the consequences. These changes are having a remarkable impact on the world’s forests and the forestry sector, e.g. through longer growing seasons, shifting ranges of insect pests and an increase of forest fires.
For example, in 2019 in Europe and MENA regions fires of greater than 30ha were observed in 40 countries and a total burnt area of 789 730 ha was mapped, which is nearly four times more than in 2018.

More and more damage to forests

  • In 2020, Siberia experienced a record-breaking heat in early summer, up to 38°C, and 14°C above normal; this exceptional climate situation has increased fire activity north of the Arctic Circle.
  • In July 2018 in Greece, several fires started around Athens during high fire danger conditions (i.e., hot, dry, windy weather). With flames reaching 30 meters high, fires spread fast and reached settlements, taking the population by surprise. 100 people died, 1650 homes were destroyed, and nearly 1,500 hectares were burnt.
  • In 2017, lightning-caused fires sparked in Portugal during severe fire danger conditions, burning over 500,000 hectares. 120 people died, many trapped in their cars while trying to drive away from the fast-spreading fires.
  • In 2018, unusually warm and dry conditions favoured the spread of fire across Scandinavia. Sweden was particularly impacted, with 25,000 hectares burned, mostly forests, in a country where timber is major source of revenue, and between 300-500 people were evacuated
  • In 2020, wildfires in the exclusion zone of Chernobyl in Ukraine, burned nearly 50,000 hectares.
  • In Poland in 2020, during prolonged drought conditions, human-caused fires spread through the Biebrza National Park, the largest protected area in the country. Fires burned nearly 6,000 hectares, or 10% of the park, which is home to exceptional biodiversity.

    The latest data on massive fires in 2021 can be summarized in the graphic below.
Source: Wildfires ravaging forestlands in many parts of globe

Source: Wildfires ravaging forestlands in many parts of globe

Stormy seasons
Climate change is not only associated with dry days and high temperatures, but also with more catastrophic wind speeds. The main losses are therefore damage to timber, pulp and logging, restoration costs and the loss of production capacity on forest land.

Source: Biggest windthrow volumes

There are various scenarios of damage after the storm:

  • Trees that are completely overturned but with part of their root system still in the ground may survive for a considerable period – little loss.
  • Trees that are partly overturned and are left leaning will continue to grow but may produce significant quantities of reaction wood in subsequent years.
  • The most harmful is breakage of wood <10 m. Stem breakage is more common on frozen soils or sites with deeper soil, and therefore better anchorage, especially forest brown soils or deep littoral soils.
  • If the degree of damage is less than 10%, no immediate management action may be required; if it is 10-30%, removal of the damaged wood must begin before it is damaged; and if the degree of damage is 30-40%, foresters usually clear the entire site.

Secondary losses resulted by storms:

  • Hail may cause big losses in nurseries and during the period immediately after planting out in the plantation; one consequence is a temporary impairment of growth;
  • Snow – the weight of snow has produced few claims in the past;
  • Ice is more devastating than snow weight; rare but can be widespread (e.g. Eastern Canada 1999);
  • Flood – Flood risk depends on location (floodplains) and vulnerability to water intrusion.

Forestry insurance

As for insurance, 2/3 of forests are insured under property policies, 1/3 of forests are insured under forest policies. The premium volume is estimated at around USD 150 million. The insurance cover is about 10% of all plantings

Source: SwissRe forestry presentation (agriinsurance conference in Istambul 2018)

The main risks that are covered by standard forestry “damage-base” insurance is fire, lightening and windstorm. Additionally, hail, ice, snow, flood and earthquake can be insured. Pests & diseases are main exceptions from the coverage but can be additionally indirectly insured via parametric insurance if there is strong correlation between the weather factor and the occurrence of higher pest populations and the spread of diseases.

There are several approaches to assessing the sum insured:

  • Establish a value of the timber per ha. This should reflect the tree species, age & yield class.
  • Cost approach. The total costs actually incurred to date for the establishment and maintenance of the forest (in the case of very young forest stands)
  • The purchase value of a forest stand. It values a forest at the value at which it would be sold if it were harvested at that time, e.g. stumpage method or fair value (standard IFRS 13)
  • Simply define (first) loss limits per m3 or ha. It is agreed that in the case of a loss the forest owner gets a maximum or fixed amount per m3 timber. Advantage: fast pay-out after a loss event.

Parametric forest insurance

Hurricane and forest fire risks can also be insured with parametric policies. Storm data are usually provided in the form of wind speed maps by independent private data providers. Based on this, the insured area will be divided into different speed zones. For each speed zone, a certain fixed indemnity is determined according to the insurance contract.

Regarding parametric fire insurance, data on burned-out areas can be provided from satellites (MODIS, Sentinel, etc.), based on the actual value of the insurance index is determined. The trigger for this policy is the minimum burn-out area.

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Architectural jewels made of wood, made in Austria

“With a pioneering spirit in engineering, we inspire our partners and customers for a sustainable future” is WIEHAG’s mission statement. The specialist for sophisticated architectural buildings made of wood is now continuing its successful path in the USA. Always on board: professional risk management.

The customer and event center Paneum of the Backaldrin company, the imposing dome-roofed green roof of the Scottish whisky distillery Macallan, and the fabulously beautiful Hans Christian Andersen Experience Museum in Odense, Denmark. What do they all have in common?

They are all pioneer timber buildings from the Innviertel-based timber construction specialist WIEHAG. The passion for wood has driven Erich Wiesner, the owner of the WIEHAG Group, and his family business for five generations. Together with internationally renowned architects, WIEHAG skillfully harmonizes form and function, and constantly redefines the limits of what is possible.

As the next milestone in the company’s history, the timber construction specialist is now venturing across the pond and playing a major role in the construction of an 88-meter-high timber hybrid skyscraper in the US city of Milwaukee.

US record-breaking building with Austrian participation

At nearly 90 meters tall, the “Ascent Milwaukee” apartment tower designed by Korb + Associates Architects will be the tallest wood-hybrid structure in the world. Jason Korb, managing director of Korb + Associates enthuses, “We are creating something extraordinary with the city of Milwaukee ─ a world-class residential project.”

The details of the project are as follows: The lower garage floors and the elevator shafts will be made of concrete. The main part of the building, however, is supported by the wooden structure. The entire supporting structure of the apartments, i.e. the vertical supports and the horizontal beams, will be made of glulam. WIEHAG supplies this wooden skeleton including all connecting elements.

The main challenges are the wood strength, which has to be two classes higher than in usual engineered wood structures, as well as ensuring a sufficient number of high-strength lamellas. Projects like these “rely” on professional project management. For the construction of the tower, ─ in addition to a sufficiently long lead time and excellent cooperation with the sawmill ─ the supply chain is also of great importance.

Quality from the Innviertel

More than 6.000 m³ of sawn timber, and only the very best boards, are used in Milwaukee for the required volume of 2.300 m³ of finished glulam. 1.150 columns and 1.320 beams will be shipped to Milwaukee in 65 sea containers.

The first components from WIEHAG will arrive on the site in April 2021, where one floor each will then be raised in weekly cycles. Ascent is expected to rise a total of 25 floors after its planned completion in 2022. This means that the residential tower in Milwaukee could replace Mjøstårnet, an 18-story hotel in Brumunddal, Norway, as the tallest wooden building in the world.

Where there is planning, risk management also plays a major role

Milwaukee is currently not the only international construction project of WIEHAG. At the same time, the largest timber construction in Asia is being built for the Technical University in Singapore, as well as a sports complex for the renowned Eton College in England, a huge shopping center for Abu Dhabi and a retail project on Tenerife. “Even as a technology leader with flexible capacity, this makes us sweat a bit” says Johannes Rebhahn, responsible for international business at WIEHAG.

So, it’s no surprise that for Johannes Rebhahn and Thomas Biringer, the responsible managing directors, project-related risk management plays a major role. The complexity of such projects requires a systematic approach to the entire process, from the bidding phase through the execution steps to project completion. An essential aspect of this is the risk transfer of project risks that can significantly jeopardize success.

WIEHAG has long since established itself as a leading timber construction specialist, and the order books are well filled even in these challenging times. Thus, the timber specialists from Altheim expect further high-rise orders in sustainable timber construction in the coming years.

“In 2021, we will invest in the expansion of our production buildings and facilities in order to meet the new market with larger capacities,” announces Brigitte Riedner, CFO of WIEHAG Holding. On board: GrECo as a trustworthy and powerful partner in risk and insurance management.

Dipl. Ing. Johannes Rebhahn
Sales Manager Engineered Timber Construction International WIEHAG GmbH
T +43 7723 465 375
j.rebhahn@WIEHAG.com

Johannes Rebhahn was born into a traditional sawmill family in Austria. He studied civil engineering at the TU Graz and in Lisbon before starting at WIEHAG in 2002. After several years in timber construction engineering, he started to develop the international market for WIEHAG and is currently Sales Manager for international timber engineering and responsible for all projects outside Austria and Germany.

Brigitte Riedner
Finance management
T +43 7723 465 1261
b.riedner@WIEHAG.com

After completing her training, Brigitte Riedner worked quite a long time for a medium-sized industrial company in Salzburg, with responsibility for finance and accounting, controlling, insurance, human resources, IT and internal organization. Since 2019, she has been Head of Finance and Accounting for the WIEHAG Group. Currently, the focus is on digitalization in accounting and investment financing. She has been working closely with GrECo’s Account Managers for two decades now.

WIEHAG
WIEHAG Holding GmbH is a traditional company of the Wiesner family in the 5th generation. Headquartered in Altheim, Upper Austria, WIEHAG has over 160 years of experience in timber construction and is a leading supplier of long-span load-bearing systems and complete roofs. Other business areas include roof, ceiling and wall elements, standard glulam and connector systems for beam girders. With a state-of-the-art CNC production plant, over 70.000 m³ of glulam and 80.000 m² of roof elements are produced annually. WIEHAG stands for wide-ranging competence in engineered timber construction.

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Karin Gaisbauer-Roth

Account Manager

T+ 43 5 0404 416

The New Timber Construction Era

Why risk managers are taking up the cudgels for sustainable timber construction, and how the insurance market can be brought on board.

Although wood has been used as a building material for a very long time, the great construction success has only occurred internationally in recent decades. This has also put the insurance market on the map. But insurers have been slow to embrace the new developments.

In the absence of empirical values or broadly based studies, reservations were voiced at the beginning against the new timber construction era. On one hand, because of a supposedly increased fire risk or insufficient experience with the behavior of the building material in case of fire. On the other hand, because of the possibility of serial damage in the serial production of components, which could have massive consequences in the construction and assembly insurance, as well as in the liability insurance. Finally, design activity was also a concern for insurers.

In the meantime, empirical values are available. It has been shown that a differentiated approach to risk assessment is required in industrial timber construction. Glulam, for example, as used in the Milwaukee tower, achieves a fire resistance of 120 minutes and more. In addition, this wood has a higher stability in case of fire than steel. The outer layers do not burn but char, forming a protective layer so that the load-bearing wood core remains intact.

With regard to the residential tower in Milwaukee, specific tests were carried out by the U.S. Department of Agriculture’s Forest Products Laboratory. The results were positive, so that the authorities and public fire protection officers, who have the welfare and safety of the residents and fire departments in mind, also confirmed the feasibility.

Hard market for the construction industry

The occurrence of fire damage on construction sites is a significant risk. This damage is mainly caused by improper hot work but occurs to a much lesser extent during the construction of a wooden building. The construction industry is countering with appropriate processes to take precautions in organizational fire protection. Likewise, various interest groups have published guidelines that continue to sharpen conscious handling. In fact, there are no indications or statistics to prove that, despite the growing share of timber construction in the total insured construction risks, there has been a disproportionate increase in losses.

However, the construction industry is not spared from the hardening of the insurance market. The extent of the rising premium costs and the shortage of capacities sometimes lead to a massive impact on the profitability of individual project contracts or even entire companies. Even more so than for construction and erection insurance, this applies to the area of planning liability. Poor technical results of insurers, especially due to major claims, are negative for risk appetite. The consequences: a high need for information in the risk assessment phase, rising premium costs or deductibles, and coverage restrictions in insurance protection (for example, for fire damage in facade construction). A prominent example: the major fire at London’s Grenfell Tower in June 2017, where the facade construction, which, however, was built of conventional materials without wood, created a chimney effect and cost the lives of more than 70 people.

Magic word „risk transparency“

As the investigation results at the Ascent Tower project show, it is important to differentiate. Individual cases that are not related to wood as a building material must not lead to erroneous conclusions.

Also, in negotiations with the coverage market, it is essential to make the characteristics of the building materials transparent and to work out the sensitive points for the risk assessment. GrECo supports clients in placing corporate and project insurance policies on the national and international insurance market. A major focus is on the joint development of risk transparency; an aspect that is also served by the general education provided by organizations such as the “Structural Timber Association” or the “UK Timber Frame Association”. These educational activities are relevant for the London insurance hub and can positively influence risk appetite or lead to more open discussions with insurers.

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Richard Krammer

Group Practice Leader Construction & Real Estate

T +43 5 04 04 119

Heavy storms, wildfires and a giant explosion – the catastrophes of 2020

Beside the Covid-19 pandemic event which is bound to cost insurers up to 80 billion US-Dollars, the usual Natural Catastrophes (NatCat) scenario was also present in 2020 and, triggered in many ways by climate change, caused an overall worldwide loss of 210 billion US-Dollars, of which 82 billion were insured (an increase of 40 % in relation to 2019). Events occurred on a global level, but worst hit last year was the Western hemisphere, particularly the United States.

After a few years of lesser activity there was an extraordinary hurricane season – the number of storms added up to 30 events, so in addition to traditional names starting with a letter of the Latin alphabet the Greek alphabet had to be used, the last storm being called Iota. The most severe storm, Laura, reached a speed of up to 240 km/h and flooded an enormous inland area in the state of Louisiana. The hurricanes caused a loss of 43 billion US-Dollars, of which 26 billion were insured. This high insurance share could regrettably not be seen in the Eastern hemisphere, where large-scale destructions by cyclones and floods in China and India remained almost uninsured. Both frequency and energy of these storms are attributed to the constant warming of the water surface of all oceans.

High temperatures even in the Arctic region and Siberia combined with long periods of drought lead to another wildfire scenario that was particularly high in the Western states of the US, like California and Oregon. Beside the huge loss of wooded areas, about 14,500 buildings and homes were destroyed in these two states alone. Weather conditions on the large plains of the American Midwest caused heavy thunderstorms and tornadoes, destroying several million hectares of corn and soybean crops.

In Europe, the NatCat experience remained relatively low last year. The worst events were again linked to climatic conditions – typical rainfall events at the end of the summer were extremely heavy on the Mediterranean coasts of France and Italy, the resulting floods destroyed hundreds of homes and traffic infrastructure, the overall loss makes up for most of the continent’s NatCat loss balance of 10.6 billion US-Dollars.

Europe was also the continent to be hit by two major earthquakes in one region, Northern Croatia near Zagreb, causing property damage of at least 2 billion US-Dollars.
All natural disasters claimed some 8,200 lives, the toll being particularly high in coastal areas and in the developing and emerging countries.

Due to the Corona pandemic and the restrictions on international travels, the number of man-made disasters, like aircraft crashes, ship disasters and terror attacks remained very low. There was one shocking event, however, the explosion of August 4th, that destroyed the port and a part of the city of Beirut, causing an economic loss estimated at 7.5 billion US-Dollars. The reason was the storage of large quantities of ammonium nitrate, a highly explosive chemical, over a long period without taking a minimum of precautionary measures.

(Sources: Munich Re, Swiss Re, Artemis)

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Andreas Krebs

Andreas Krebs

Head of Insurance Mediation Services

T +43 5 0404 229

High risk, excellent fire protection

Competitive insurance market for timber industry and recycling companies

The premiums in corporate property insurance are currently rising in all industries and loss-affected insurance contracts and types of establishments that are classified as critical, such as the timber industry and recycling companies, are especially hard hit by the consequences.

The triggers for market hardening were primarily the negative results of international corporate insurers and the lower number of providers as a result of company mergers. In addition to the premium increases, the different, more cautious risk and underwriting policy is also particularly evident among insurers with less capacity available for “risky” industrial risks (compared to the “normal” core business) on the market.

Few providers

A particular challenge at present is posed by the placement of insurance solutions for timber processing businesses and recycling companies: there are currently very few providers that accept requests for these industries. The majority of market players refuse to submit an offer from the start because claims experience does not suggest a positive business development. The remaining insurers now focus mainly on compliance with safety standards, preventative and precautionary fire protection, and the general attitude towards risk management in companies. They are checking in detail the extent to which their minimum requirements have been met and are also requesting additional detailed information on the current risk situation.

Risk mitigation measures

The insurability of their member companies has been a hot topic for the professional associations of the aforementioned industries for years, which is why the decision has been taken proactively to help improve the claims situation. The professional association of the Austrian timber industry and recently the association of Austrian waste disposal businesses, for example, has published its own guidelines for fire protection. These were produced in conjunction with fire protection experts and the insurance association. This means that specific recommendations for improving risk quality are provided, along with an overview of the fire protection measures requested by many insurers.

The extent to which existing fire protection equipment meets the recommendations of these guidelines can be checked using GrECo’s self-assessment tool. A corresponding report is generated after all relevant data has been entered, and clearly depicts the current risk situation. From the report, our risk engineers can then develop a tailored set of risk improvement measures.

GrECo Risk Engineering GmbH is pleased to offer advice here and is also available for individual analyses of the existing risk situation and to specify risk-improving measures.

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Rudolf Schiel

Practice Leader Property & Engineering

T +43 664 822 27 58