By Chris Moran and Steve Hicks

As a business owner you have likely asked yourself, “If my woodworking business were to burn down, how much would it cost to rebuild?” If nothing else, it is a conversation you have had with your insurance provider or broker at some point.

You also probably discussed business income coverage to help make up for lost income and pay operational expenses if business were to be halted due to an insurable event. That coverage can be invaluable, but have you revisited your policy limits lately? If not, you could be woefully unprepared should the worst happen.

The economy and supply chain issues dominate the news of late and the impact to your business can translate to slowing of delivery of materials needed to repair or rebuild structures, as well as delaying the manufacturing and delivery of equipment and more to get a woodworking business back in operation after a fire or other insurance loss.

Further, construction workers, delivery drivers and other laborers are increasingly hard to find amid the national labor shortage. All of these factors can potentially contribute to derailing any plans for getting repairs to a damaged woodworking facility completed in a timely manner. 

It's essential to make sure your woodworking business is protected during a time of crisis with quality, comprehensive business income coverage that has been updated to fit not only yiur business’ needs, but the realities of today’s supply chain and labor difficulties. Without adequate coverage, a woodworking business could be forced to close its doors permanently. 

What business income loss looks like
As if it isn’t hard enough to lose the facility as well as the inventory inside, woodworking business owners who experience a fire or other covered loss would also likely experience an interruption in their business operations and disruption to income for months afterward. Meanwhile bills and expenses continue uninterrupted.

In fact, 25% of businesses fail to reopen after a catastrophic event, according to the Federal Emergency Management Agency. 

It has been our experience that, too often, the failure to reopen is not due to inadequate insurance coverage for personal property or the structure, but from lack of income to fund operations and ongoing expenses. 

While many business owners believe it will not happen to them, it’s best to be prepared. In 2021, 125,500 fire losses impacting nonresidential and commercial structures were reported in the US. This translates to about one fire every five minutes.

Why woodworking businesses are at increased risk
Any business working with wood, within high wood dust areas, and employing flammable glues is at increased risk for fire.

In the woodworking world, this can include professional woodworkers, cabinet makers, furniture manufacturers, hardwood flooring manufacturers, millwork manufacturers, and cabinet makers among others. 

Chief risk exposures for woodworking businesses that can lead to business interruptions can be mitigated, but having knowledge of those risks is the first step. 

•    Electrical risk is a key risk exposure for woodworking businesses, particularly related to extension cords. Business owners should be sure not to:
o    Daisy-chain extension cords.
o    Run extension cords under carpet.
o    Use poor quality extension cords that are not UL approved.
o    Use extension cords as a permanent fix.

•    Wood dust too often is the cause of major fires that have led to fatalities, injuries and significant financial loss. To manage wood dust, business owners should:
o    Maintain proper housekeeping to clean areas that tend to collect dust.
o    Invest in proven dust control systems and equipment.

•    Red glue is a highly flammable adhesive that can also cause illness. Business owners should consider: 
o    Switching to a water-based glue.
o    Using red glue in a spray room or spray finishing booth only. 
  
How business income coverage can help
Business owners can protect their facilities and team members by taking these risk mitigation steps and investing in the right insurance, preferably provided by a specialty insurer who knows the intricacies of the wood niche. 

In addition to property and general liability coverage, woodworking business owners likely own or have been presented with business income insurance. 

While a business owner may already have coverage in place, it’s important to re-examine the policy with an insurance specialist who knows the niche. While it previously may have only taken six to 12 months to get a facility repaired and business up and running pre-pandemic, supply chain delays and labor shortages are stretching out this timeline significantly. 

As such, woodworking business owners who have existing business income policies should talk to their insurer about the benefit period, also known as the “period of restoration” of business income coverage.  

The period of restoration begins roughly 72 hours after a loss (waiting period) and ends with the date when the covered property is repaired to pre-loss condition with reasonable speed or the date when operations resume.

Most policies have a 12 month limit, however, with supply chain and labor restraints, the period of restoration can likely be pushed well beyond the 12 month limitation found in most business income policies. Having the right business income coverage can extend the period of restoration beyond the 12-month limit. 

Endorsements are available from reputable insurers who understand the wood industry and can provide appropriate business income policies. With these endorsements, business owners can customize business income coverage to their unique business needs.

Endorsements such as Extended Business Income allows for the extension of business income coverage beyond the time when the covered property is repaired but when business is not back to normal yet. Typically, this endorsement extends the business income for an additional 30, 60 or 90 days.  

Business income can also be broadened by endorsements to include rental income from rental properties and Extra Expense to pay for expenses that you would not normally have.

Ordinary payroll can also be endorsed to be extended beyond the built in limitation, which is normally 30 or 60 days.

Income loss due to a supplier suffering a covered property loss can be included under the Dependent Properties endorsement.

There is also an endorsement that covers an interruption from a utility provider. There are several other endorsements to broaden business income coverage. That is why it is critically important to have a comprehensive discussion about business income with your broker.

Suffering a loss to your business can be traumatic. Having the right insurance coverage can make a big difference in helping you navigate the situation and help get you back to business as usual. As supply chain and labor issues continue, be sure to check the fine print of your business income coverage to make sure you can make it through the worst with less financial burden. 

Chris Moran is senior business development representative at Pennsylvania Lumbermens Mutual Insurance Company (PLM). Steve Hicks is the assistant vice president of underwriting at PLM. PLM is a nationally recognized property and casualty insurance carrier serving the lumber, woodworking and building materials industries. They can be reached at [email protected] and at [email protected].