How best to insure against waste-related fires
In May of this year, a fire broke out at our client’s material recycling facilities.
This led to thousands of tonnes of recyclable material having to be disposed of, as well as a loss of business while the site was closed. Another fire at a Birmingham recycling plant made national news, when a rogue Chinese lantern landed in a pile of exposed plastic waste. The resulting damage was estimated to be in the region of £20 million.
These are just two examples of high-profile losses in the waste industry caused by fire damage that have occurred in the past year. While the debate rages on as to whether waste needs to be stored inside rather than in the open air in order to reduce the chance of fire, the risk still remains. Once a fire sparks to life, it is notoriously difficult to extinguish, even with the efforts of emergency services and gallons of water.
Having dealt with the majority of these major claims, Harris Balcombe has developed a thorough understanding of the problems and issues waste companies face when searching for insurance cover, and the challenges they run into when making a claim. There are some particular requirements that need to be taken into account when considering the insurance of these types of risks. The insurance industry as a whole does not operate in a way that corresponds with the process and value of waste recycling, so when assessing the details of the policy it is essential to ensure that the facility is compliant with the warranties and conditions.
Removing fire-damaged waste material
This is the first major consideration. Most of the time, the Environment Agency will insist that the waste is no longer fit for recycling, and must be sent to a landfill site instead. Further complications arise from the waste naturally getting soaked during the attempts to extinguish the fire. Wet waste cannot be processed by the normal dry recycling machines, commonly known as a Material Recycling Facility (MRF), and will also weigh significantly more, having absorbed the water. Add that to the fact that the cost of transporting waste to landfill sites is based on the weight of the load, and it’s easy to see how the expenses start to spiral rapidly upwards.
This is why Stock Debris Removal cover is absolutely essential. There needs to be sufficient cover for the realistic cost of removing potentially thousands of tonnes from the loss site to a landfill site.
The impact of insurance choices
Many business insurance policies are still set up on a ‘traditional’ basis, attaching values to incoming waste, labelling it as a purchase and establishing a rate of gross profit. However, most waste recyclers do not actually purchase the waste; usually unprocessed waste is delivered to them, and the incoming waste handler is charged a gate fee.
This is contradictory to the corresponding cover, as the waste recycler may have ongoing contracts that oblige them to take waste from clients, regardless of their continued ability to process it. This usually results in the recycler having to pay for the waste to be recycled at a separate facility, often one owned by a competitor. For precisely this reason we would advise insuring on the basis of turnover, rather than gross profit.
Another issue that frequently affects waste recyclers relates to unprocessed waste. Insurers have been known to input clauses stating that unprocessed waste must be removed by the end of the working day, but with plants that receive and process waste 24 hours a day, this is not only impractical but a technical impossibility. With 24/7 operation, when exactly does the working day end?
Indoor or outdoor storage?
Due to the rise in fire incidents at waste facilities over the last year, insurers are imposing onerous conditions and adding large excesses on the cover they provide. One example includes an insurer requesting that computer-controlled water cannons be installed within an MRF, in order to extinguish a fire immediately rather than rely on a sprinkler system. Other requirements include an insistence on waste being stored solely indoors, where it is safely protected from both arson and public carelessness, but these indoor facilities currently represent a huge expense. The business rates associated with these buildings can be up to ten times greater than those for uncovered sites, not including the cost of the building itself and the expense of adding sprinklers. Half-covered storage facilities have been suggested as the most reasonable compromise, with the covered half equipped with sprinklers to ensure safety.
There is no one solution to comprehensively preventing waste related fires, but with the right insurance policies, correct extinguishing mechanisms and Harris Balcombe’s expert assistance, the damage can be minimised.
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