President’s Commentary

I hope this finds you off and running and doing well in 2024! Unfortunately, for PLM, we have faced a few challenges so far this year. We concluded the first quarter behind plan from both a profitability and production viewpoint.

A Look at Losses

After a number of years where our fire losses were trending favorably, we have seen a reversal early in 2024. While property loss frequency is still dropping, we experienced six large fires in a six-week period over the first quarter. All six losses exceeded $2 million, with two of them over $10 million. Interestingly, five or six years ago, these types of losses would have been from sawmill or pallet operations. None of these were! They were all losses from light manufacturers or lumber dealers. We will be looking at each loss closely, but at a glance, all of these accounts (with the exception of one) were quality operations, many of them never experiencing a significant loss before. Such is the nature of this industry. Experience teaches us that there may not be many losses, and accounts may not have a loss for years or even ever, but when they do occur, they tend to be severe.

Auto losses improved a bit year-over-year, however, there are continuing problems with fleets in urban areas with the dealer segment of our business. We are seeing a number of insureds sign up for loss control programs and then not implementing them or following through with them. In several cases, compliance with these programs is a condition of our renewal. Insureds that agree to implement a loss control program and then don’t, will soon be ex-insureds. Those of you who know me, know that my word is as good as a written contract. I expect nothing less from our business partners. When someone tells us they will do something, we expect it to be done. Period!

This may seem like a tough stance, but these are pivotal times. The insurance industry is challenged with losses causing many insurance companies to lose money for every dollar they collect. While many factors are out of our control, whether it be severe weather, nuclear verdicts, or rising costs of repairs, now, more than ever, we need to focus on what we CAN do. On our side, we have relied on our investment savvy and looked to cutting expenses, which is especially difficult when the cost of everything has gone up. We have also increased our loss control communications and implemented more safety programs for our insureds. This is where you come in. As a mutual insurance company, we are here for our insureds, but this relationship goes both ways. We need our insureds to step up and take ownership of their part in the risk management process. After all, being a safer business is better for your business.

Construction Defect Claims

Another area of concern is the surge in construction defect claims (general liability), usually associated with dealers, but not exclusively so. The most common scenarios that result in an insured getting involved in a claim are as follows:

• First, they supplied something to the contractor or jobsite.
• Second, they signed contracts accepting broad-based liability from their client.
• Third, they have a contracting exposure because they hire the contractor to do the installation of the product.

We used to see these claims in three or four notorious states. Now they come from the majority of the county.

So, what can you do? Review the contracts that you are signing and understand what liability you are accepting. If you are hiring a contractor, hire one from a reputable firm that you know will be around if a claim develops five years down the line. If they are not around, you will end up as the primary defendant. Make sure you keep a good record of contractors you interact with. If you do not remember and cannot identify the contractor that you hired to do the job, you will end up as the primary defendant. If you want more information on this topic, you can contact Rich Hall, SVP of Underwriting (rhall@plmins.com) or John Kennealy, VP of Claims (jkennealy@plmins.com).

First Quarter Production

Looking at PLM’s production numbers, we continue to grow, but are growing at a slower rate than expected. We have seen a surge in submissions, i.e., people looking for quotes, and we are producing quotes on a much larger amount of business. We quoted over $7 million of new premium in April and almost as much in March! These are substantial numbers for us, particularly because there were not any huge accounts associated with them. Our renewal retention continues to be very strong (in the 90+% range), well above target. Premium retention is strong although below target. The premium retention issue is driven by a drop in the auto segment, as we move to non-renew problem accounts (or the aforementioned accounts that promised one thing and did another).

Our in-house agency, Green Tree Risk Partners, continues to “grow roots.” While behind premium targets in new workers’ compensation policies being written, we see continuous improvement month-over-month. Workers’ compensation retention remains positive. We will continue to expand the workers’ compensation markets that Green Tree is working with and will compete when given the opportunity to provide our insureds incredible value in this area.

Cyber Trends

I would like to take a moment to comment on cyber-related issues. I thought I might provide you with some numbers that will help you gauge how real this issue is.

PLM’s 24×7 perimeter monitoring system logged a staggering 131 million events in March, up 31% from our six-month average. The monitoring service generated 105,000 “alerts”, a 50% increase versus the six-month average. The majority were immediately dismissed, but 4,100 events required further analysis. The trend is showing more activity/events than our six-month average, triggering the same number of actual alerts. There were no material alerts in March that required action. The point is the cyber world is not becoming easier to navigate. These events not only increase risk to operations but take staff away from value-added work and strategic initiatives that can help make our businesses stronger and more resilient.

Last week I called our SVP of Accounting and told him, “John, the system is down, and we need to issue payments manually using checks without the payment system. Can we do it?” Keep in mind we have a deep cyber program for just this type of situation, and the answer was, “Of course, absolutely!” That is until someone went to look for paper checks. A similar question was asked of Marketing whether we have access on a separate or isolated laptop to a mailing list of all our clients, and/or vendors in case we need to send snail mail to them. The point of this is more than whether we can do these things, it is, are you asking the questions? We run ongoing training courses for all our people, use an outside vendor to test us and simulate events with the entire leadership team. There is a detailed recovery plan, but still, it takes from time to time, someone asking the unplanned questions and then sitting back and watching what happens! 131 million events during March for PLM… do you know how often hackers are testing your system?

Wood Insurance Experts

Many of you know I can be blunt, so if I am warning you of that, I guess you know where this is going! I read a lot of wood industry trade journals every week. I find doing so helps round out my understanding of your business, the issues you confront, as well as how you deal with them. It allows me to formulate PLM’s long-term strategy. Many here at PLM review those same magazines and journals. Occasionally, I note that there are risk management and loss control articles included. While both our major competitor and PLM contribute many times to these journals (and I encourage you to read both theirs and our loss control and safety articles), occasionally other “experts” will enter the fray — brokers and safety professionals. I find myself struggling in some cases when I read about reinsurance or pricing when the articles are written by insurance brokers. For the most part brokers can tell you what they are hearing, reading, and seeing, but in many cases they do not have large enough books of business in the wood industry for them to focus exclusively on wood. So, their comments are more general in nature. Most have never or will never buy reinsurance, yet there they are commenting on conditions in the reinsurance marketplace. I picked up a PowerPoint done recently by a broker talking about pricing in the lumber niche and found it to be much lower than what we are seeing. I wondered what the broker was trying to achieve, and assumed it was sales oriented.

Years ago, an association put an article out that talked about the distance that was acceptable between stacks of lumber and quoted NFPA as the standard. I called them and suggested that I was not aware of ANY insurance company that understood wood that accepted the standards that were suggested. I shared what I thought and knew to be what insurance companies were looking for in spacing. I was told it did not matter what an insurance company thought, only that the business met NFPA standards. My reply was that as far as I knew, the NFPA had not entered the insurance business and was not issuing insurance policies. The point being, when you want factual information on the insurance industry and the wood business, there are two insurance companies that I know of that can provide you factual information, and only one that focuses exclusively on your business. I think you know who that is and which one we are!

When we at PLM want information about your business, we ask you. I suggest that when you want information on the insurance industry, you ask us (or our competitor for that matter). We are a mutual insurance company. We were formed over 129 years ago by lumbermen, for lumbermen. You have a membership right in PLM. The money we earn isn’t sent off to stockholders – it is retained in the company for the benefit of our members.

 

As always, I welcome your feedback, questions, and comments at jsmith@plmins.com.