Biodiesel Property Insurance? If you own a small biodiesel plant, 10 million gallons or smaller (not an exact science), you will find that insuring your plant and business income/extra expense exposure is critically difficult. Larger plants have some options.’s Law has given Biodiesel a bad name in insurance circles. Here is a short history and rationale:
Insurers did not want to insure Biodiesel plants as many smaller plants were not using advanced technology. Rather, they were a series of tanks that had been connected and while biodiesel was being produced, the product would likely not meet specifications, plants used inferior materials, and there were little, if any, controls in place to reduce or eliminate property losses. These were considered, “Mom and Pop” businesses with little sophistication.
In the mid to late 2000’s there was a push to build larger 40-80 million gallon plants. As these began to be planned and built, many of the small, unsophisticated plants stopped operating. However, the larger plants began to struggle as well as most were based on a sole feedstock of soy oil. Soy Oil pricing increased to a point where margins were unlikely and many of those plants were idled, never finished, could not get financing, had their financing pulled, or otherwise went out of business. Some plants were able to move to a multiple feedstock scenario, continue to operate today, and can find insurance.
Then, the delay in the tax credit hit and many Biodiesel plants went out of business, were put up for sale, became vacant properties, went idle, etc. and many did not pay premiums. Insurance carriers and agents had to chase down premium payments, some clients simply could not pay premiums, and so many insurance carriers refused insure the plants at any price.
As the insurance market whittled itself down to only a few insurers, there were a couple of large losses that made the news and all of a sudden the remaining insurers decided they wanted no more of it. Today, the smaller Biodiesel plant is lucky to find an insurer and if they find one, the pricing is ridiculously high. Biodiesel plant owners are trying to find a rationale as to why their premiums are skyrocketing. They have had no losses, they feel they have good controls in place so what rationale does an insurer have for over charging them? That’s the question that haunts them.
Back up a second and look at it from a biodiesel property insurance provider’s point of view. Here is what they are thinking:
- This industry is an embattled industry. Everywhere you look, people are taking shots at Biodiesel. All of the news you hear from the main stream media is negative.
- These plants can’t make it without government help and what happens if that dries up like it did when the tax credit was delayed? That leads to a much higher moral hazard.
- Many of these smaller plants are not protected by adequate fire protection systems. In fact, some don’t even have public water on site. Many are not in city limits.
- Because of inconsistency of margins, maintenance efforts could be lacking.
- They don’t feel that they can get enough premium to justify the risk.
- Reinsurance costs are high or Biodiesel is an excluded class.
- Most carriers feel as though they do have the technical expertise or knowledge to properly evaluate a Biodiesel Plant.
- Most insurers have gone to “Class” underwriting where something fits in the box or it doesn’t, and Biodiesel doesn’t fit..
- Even carriers the specialized in “Renewable Energy” have increased their minimum premiums and protection requirements.
An insurance underwriter is like a stockbroker. The insurer gives them a sum of money to invest, i.e., they are to go find risks that will not have claims, or where claim payments will not exceed 50-60% of the premium. They collect the premium and at the end of the year, their management will look and see how successful they were; how much premium did they bring in versus how much money was paid out in losses, The more profit they make, the better they are rewarded. If they lose money, they have consequences.
Therefore, the extent of risk an underwriter is willing to take is based on:
- What parameters the insurance company has given him/her
- How comfortable he/she feels in their knowledge of the industry and the risks associated with the industry
- Their comfort in the risk/reward return
- The comfort they have in the agent/broker bringing them the opportunity and understanding their client
Most plant owners would say, “An insurer is in the business of risk, so they should insure us.” Insurers are in the business of taking calculated risk, i.e., actuarial risk. There is an old adage that says, “Don’t risk a little for a lot.” In the insurance carriers frame of mind, insuring Biodiesel plants is risking a lot for a little.
In the current marketplace, most insurers have eliminated Biodiesel as an “accepted” class. Most property underwriters do not have expertise in Biodiesel and so there is not an acceptable risk/reward relationship, and for those who have knowledge in the industry, they are looking at other, better risk/reward opportunities.
If you currently have a property carrier insuring your property, do everything you can to keep it. There is no greener grass on the other side. If the carrier has made recommendations, comply with them. Do whatever you can to keep them.
I would like to tell you that you could put in a sprinkler system and that would help you in terms of price, but it likely will not. It may open an additional carrier or two, but likely will not positively impact premium. There are very, very few carriers that will entertain insuring property on Biodiesel plants. Premiums alone can cause you to cease operations, self insure, or certainly negatively impact your margins.
If you have lenders who require your plant be insured, you will not have any choice other than to pay the high premiums, so protect your insurance. For those who must find another insurance carrier, be prepared for higher premiums, higher deductibles, and less coverage. Plan now and don’t be caught off guard.
Lee Enterprises Consulting (LEC) offers a wide range of services in the Business and Financial arena such as Due Diligence, Feedstock Availability, Grants and Loans. We also offer Technical and Engineering services like Techno Economic & Environmental Evaluations, Feasibility Studies, Risk Analysis and Expert Witness engagements. Any large renewable energy and biochemical consulting firms like LEC should be able to offer a wide range of services in business and financial areas like due diligence, market studies, grants and loans; in technical areas like feasibility and techno economic studies, environmental evaluations, technology evaluations and selection, and risk analysis. They should have experts to fit virtually any expert witness engagement in the bioeconomy and will likely have strategic partnerships in place to assist with ethanol and biodiesel property insurance, legal, accounting, plant fabrication, feedstock procurement. will certainly have experts in more common areas like biofuels, biomaterials, biomass & biomass power, bio-based chemicals, biotechnologies and in renewable fuels and chemicals in general. Energy consultants in this type of firm should be willing to discuss a client’s initial questions about things like renewable energy sources, the types of biofuels, biofuel companies, synthetic biology, the fermentation process, biomass renewable energy, biofuel energy, conversion technologies for things like tires and railroad ties, and about the circular economy in general. If these clean energy experts are part of a larger, multidisciplinary group of green energy consultants they will have the ability to collaborate internally with a wide variety of expertise in more specialized areas like biomass production, financial due diligence, organic synthesis, fuel additives, ethanol gas, biodiesel fuel including algae biofuels, solid state and industrial fermentation, green energy grants, ag biotech, agricultural waste, alcohol fuels, alternative proteins and animal-free products, sustainable foods, beverage fermentation, biocatalysis, biodiesel conversion, biogas production, biomass power, carbon intensity, co2 utilization, combined heat & power, Fischer-Tropsch technology, food waste, hydrothermal carbonization, industrial enzymes, landfill management, microbial fermentation, organic synthesis, plastic pyrolysis, plastic recycling, plastic waste, pyrolysis oil, reactor design, renewable identification number, the Renewable Fuel Standard (rfs2), solid recovered fuels, torrefaction and torrefied biomass, waste to energy, and waste-to-hydrogen. In short, any large bioeconomy consulting firms should be a virtual “one stop shop” for any client need and should be able to types and sizes of projects.
Lee Enterprises Consulting is the world’s premier bioeconomy consulting group, with over 100 highly qualified experts serving in all these areas. Look at our experts and the services we provide. Most of our experts are also available to advise and serve as expert witnesses in bioeconomy litigation matters. For the larger projects, we specialize in putting together full service, interdisciplinary teams with one point of contact. See video about LEC here. Call us at 1+ (501) 833-8511 or email us for more information.