While landowners find timber insurance attractive, what they are willing to pay for it is significantly less than the going rate, and most choose to go uninsured and risk the losses even after Hurricane Katrina and last April’s destructive storms.
That was the finding of a recent timber insurance study conducted by the Mississippi State University Forest and Wildlife Research Center. The findings were released last month, and even the study’s researchers were surprised at what they found.
“Many landowners believed there were government programs in place that would help if their timber was devastated by some disaster,” said Dr. Ian Munn, a forestry professor at MSU. “Despite the fact that almost every landowner had insurance on their homes and cars, essentially none had insurance on their timber, even though in many cases the timber values were substantially higher than their car and in many cases their homes, as well.”
“Value” is the key word. While landowners surveyed for the study expressed interest in timber insurance, the gap between what they are willing to pay and what coverage actually costs is wide.
MSU contacted approximately 2,000 landowners in Mississippi who held more than 200 acres of timberland for the survey. They were asked what they would be willing to pay for standing timber insurance given a 3 percent deductible.
Respondents said they would be willing to pay $2.38-$3.59 per $1,000 for standing timber insurance. The going premium rate is approximately $6 per $1,000.
This has Munn and others perplexed, particularly when considering the catastrophic losses landowners have incurred recently. In 2005, Hurricane Katrina damaged $1.3 billion worth of timber on 1.2 million acres. The Mississippi Forestry Commission estimated that 24.2 million cords of timber were destroyed.
Last April’s severe storms that spawned numerous tornadoes damaged 74,241 forested acres, with total losses ringing in at more than $30 million.
“Among our members, I have heard a lot of talk about the availability of liability insurance for those members that are using their land for hunting, hiking, bird-watching — extra revenue for landowners,” said Tedrick Ratcliff, executive vice president of the Mississippi Forestry Association. “But I’ve heard no talk about the availability of timber insurance. I would love to know how many of those who were surveyed even knew timber insurance existed before they were contacted.”
The Association utilizes timber insurance carrier Davis-Garvin Agency Inc., which is headquartered in Columbia, S.C. Each claim covered is adjusted separately, and from the amount of each adjusted claim a deductible of 5 percent of the total value per risk insured or a minimum of $500 applies.
The basis of the loss valuation is the market value of the salable trees at the time of the loss, less any salvage amounts. The landowner/timber manager determines the value to be placed on the trees for premium determination.
Munn said at one time, Davis-Garvin was the only carrier offering standing timber insurance in Mississippi.
The Mississippi Insurance Department does not have a list of companies offering timber insurance in Mississippi, but the Department’s Joseph Ammerman said Department personnel he asked believe Davis-Garvin to be the only company currently in the Mississippi market.
Davis-Garvin account executive Tim Lowrimore called his firm’s timber insurance portfolio in Mississippi “substantial,” but admitted that it is small relative to the number of landowners and forested acres in the state.
While landowners seem comfortable with the risk, Lowrimore wonders what lenders are thinking.
“Most of the land is financed,” he said. “I don’t understand why banks don’t require timber insurance of landowners. If you buy a car, the lender requires insurance. Why not on financed timberland?”
There seems to be more questions than answers in the timber insurance arena. Unfortunately, the MSU study has not registered with landowners or insurers yet.
“A few folks have asked for our results. I don’t expect a lot at this phase because our final results have not been published and therefore not vetted by peer-review,” Munn said.
Concerning the gap between landowners and insurers, he said, “There are a variety of reasons. Most are of the ‘which came first, chicken or the egg’ variety. Very few land owners wanted timber insurance because the rates were perceived as too high. Very few companies offered insurance on timber because very few land owners wanted it. Those that did offer it, had to set rates high to compensate for the low number of landowners that would buy it.
“One way insurance companies can diversify their risk is to sell a lot of policies across very different regions so if a disaster did occur, it would likely impact only a small percent of their customers.