Earth Day: How Insurance Works with Recyclers

Today marks the 40th anniversary of Earth Day and this year the Environmental Protection Agency turns 40 as well. Earth Day, the EPA and activists have been catalysts for one industry’s growth, in particular.

The recycling industry plays a critical role in environmental protection, and movements such as Earth Day have helped this industry to grow into a profitable business segment.

The recycling industry’s growth also offers new opportunities for insurance professionals, according to Nicole Croteau, vice president of Willis Programs, who has seen first-hand how the recycling industry has developed over the years.

“The EPA and other federal or other state regulatory bodies, and certainly the Earth Day event itself, were and certainly continue to be catalysts for all of us to work harder to transform recycling into the opportunity that it is,” Croteau says. “We have the ability individually as well as from large commercial entities, or from states, or towns, or what have you to reduce, reuse, and recycle to protect our air, our water, and what we now know can benefit all of us economically.”

One of Willis Program’s 30 programs — RecycleGuard — specializes in insuring the recycling industry — everything from firms that recycle metal, paper and plastics to rubber, glass, and even electronics. In RecycleGuard’s 14-year history, Croteau has seen many changes in how the recycling industry does business and how people view its importance.

“The industry itself, those that actually practice the processing of recycling, certainly has made great strides,” Croteau says. “The old junkyard that we all grew up around and knew about, those people were actually cutting-edge recyclers.”

Even before recycling became hip, junkyard owners understood why reusing and recycling was important — from both environmental and economical perspectives. Metal and paper, in particular, are highly traded commodities on the stock exchange.

Insurance Needs

As the recycling industry continues to progress so do its insurance needs, Croteau says.

“The recycling industry has grown so much that obviously their insurance needs have progressed right alongside of that,” Croteau says.

The RecycleGuard program offers typical business coverages such as general liability, equipment breakdown, property, automobile, umbrella, and workers’ compensation. Another increasingly important coverage is environmental liability.

But what makes the RecycleGuard program different than the regular insurance marketplace, Croteau says, is that it will not write anything that falls out of the box. “So if they’re not in the business of recycling or processing metal, paper, plastics, rubber, electronics, etc., then they don’t qualify for this program,” she said.

However, the program offers coverage for “mom-and-pop” recycling shops to large facilities and operations.

“We do have the small, new ventures. Sometimes it’s a husband and wife deal. Sometimes it’s a father and son. There are a lot of family connections in recycling. But we also have facilities and operations that have 300-plus fleet sized vehicles.”

The benefits of a recycling program like RecycleGuard can include specific industry coverages that might not be found in the regular marketplace.

For example, one common loss exposure in the recycling industry is metal theft — copper wiring and pipes. “Another incident that sometimes happens is manhole covers are stolen, or the fire hydrant pipes that are outside of hotels are cut off, and they’ll show up at a scrap yard where the thieves are obviously trying to make money from selling the metal.”

Theft incidents make partnership between recyclers and local law enforcement critical, Croteau adds.

Another important coverage, called conversion coverage, responds when recyclers are legally obligated to pay back the value of stolen material that they may have unknowingly purchased. “That’s something that’s extremely unique and obviously critical to the industry,” Croteau says.

But from a program perspective, Croteau says what’s most concerning are potential exposures from auto liability. “Most of these folks have their own extra heavy trucks, which are obviously loaded with scrap and have a significant over-the-road exposure,” she says. “So from an insurance perspective and from a program perspective, we’re concerned about the over-the-road exposure, as well as the premises exposure on the general liability side where you have customers, whether they be residential, your peddler customers, or heavy commercial customers, that come onto some of our scrap yards.”

In any recycling facility there’s a lot of material handling, a lot of heavy equipment and a lot of mobile equipment. “It’s a very dangerous place to be if it’s not managed properly,” she says. “We want to make sure that from the operation’s perspective that when they have vendors or customers that arrive on their premise that it’s secured enough and safe enough.”

Such exposures go hand-in-hand with workers’ compensation because of the employees’ work with heavy machinery, equipment and shredders.

“These are mammoth machines,” she says. “There is certainly some inherent danger when you’re working around heavy equipment from your employees’ perspective. That’s something that we’re constantly managing.”

Market Outlook

Like most of the property/casualty insurance marketplace, insurance for recyclers continues to be ultra-soft, Croteau says.

“It seems hard just to say that it’s just soft, because it’s certainly something like I’ve never seen with the competition and the pricing being driven so low,” she says. Both national and regional carriers write in this class, and both entertain risks for much less premium today.

“People seem to have moved the bar down, where before if you wanted a national accounts underwriter to pay attention, you really needed an account to be over $150,000 in premium,” Croteau says. “But gone are those days because (now) we see national caliber carriers in the $75,000 range.”

Even with all the competition, Croteau doesn’t lose sight of the fact that the recycling industry is a tough class. Carriers must have significant underwriting experience in this class to be successful.

“The exposures that exist are extremely critical that you underwrite them properly and price to be profitable,” Croteau says. “If you under-price the account and the account sustains a loss … it’s typically not a glancing blow.” While the industry possesses typical injury losses as well, most injury losses tend to be a traumatic loss because of heavy machinery or heavy vehicles.

The future looks good for recycling and insurance providers servicing this market. Croteau says the recycling industry will only continue to grow in part because recycling saves money, for people and businesses.

“That’s not to gloss over the environmental benefits that we receive from doing it,” Croteau adds. But there’s no denying the economical benefits recycling holds. “It can only grow,” she says. “We still have a lot of potential.”

But what’s most important to remember on this 40th anniversary of Earth Day is the impact recycling has made on the world.

“I really think that the recycling industry has reinforced their image in cleaning up the planet and reusing materials,” Croteau says. “But the most important thing that’s happened in the past 10 years is the partnership that now exists between recyclers, governmental agencies, the EPA, and communities, and just regular people coming together to make a difference.”

Topics Pollution