Electronics recycling and reuse companies say insurance has become significantly more expensive and difficult to manage, so they’re employing a number of strategies to cope.
E-Scrap News spoke to a variety of facility operators and a risk management advisor to learn how companies are adapting as insurers raise premiums – or exit the recycling space altogether – due to battery fires and other concerns.
Managers from FCM Recycling, Universal Recycling Technologies (URT), Novus Solutions and others identified a variety of steps they’re taking: investing in fire detection technologies, relying on multiple policy providers, and good old-fashioned research and education.
“If a facility does not have and has not invested in some proactive measures to mitigate fire risks, they are probably not buying insurance or are paying a lot more for it,” said Danny Edwards, a risk management advisor with Oklahoma-based BancFirst Insurance Services.
‘Simply withdrawn from the recycling industry’
URT, an e-scrap recycling company with five locations in four states, has recently experienced the pinch of a constricted insurance market.
Ken Thomas, president of URT, told E-Scrap News the company’s former provider of insurance protecting URT’s equipment (the buildings are leased) decided to exit the recycling space altogether. And URT hadn’t had any claims under the old policy.
“It was just a matter of them saying, ‘We’re done with recycling,'” Thomas said.
When a broker went shopping for insurance on URT’s behalf, of about 20 insurance companies, “the vast majority of them had just simply withdrawn from the recycling industry,” Thomas said.
Of the five or six still willing to insure recycling companies, the insurers focused on the sprinkler systems that are in place in the facility, with concerns about batteries and e-plastics inside the building, Thomas said. In the end, URT received insurance from three different providers, with the combined premium coming in at nearly 10 times the previous rate the company paid, he said.
FCM Recycling, a Montreal-based electronics recycling company with seven facilities across Canada, saw premiums skyrocket before COVID-19, with some big insurance companies exiting the Canadian recycling market.
FCM’s premium more than tripled, according to Andrew Rubin, president of FCM Recycling.
“The second you said ‘recycling,’ they wanted nothing to do with you,” he said.
Worries about data and piracy
Today, the property insurance market seems to have stabilized in Canada, Rubin said. But a recent change he’s seen is insurers requiring electronics processing companies to hold directors and officers liability insurance.
The goal is to protect against data breach liabilities, so that a processor won’t be put out of business if a hard drive didn’t get properly wiped, he said.
“That’s really the only recent change in anything,” he said.
These days, Novus Solutions, a Marietta, Ga.-based ITAD/ITAM company, simply moves batteries to downstreams without processing or accumulating large quantities of them, because of past insurance concerns.
But that doesn’t mean leaders there haven’t had their fair share of insurance headaches.
“Across the board, they just don’t understand what we do,” John Flynn, co-owner and managing director of Novus, said of insurance companies.
Learn more in person
Fire mitigation strategies and much more will be discussed at length during the “Setting Up a Facility for Safety” session at next month’s E-Scrap & E-Reuse Conference in New Orleans. Organized by the Institute of Scrap Recycling Industries, the session takes place Tuesday, Sept. 19, at 9:15 a.m. Central and is part of the event’s EH&S track. See the full three-day schedule and register for the event today.
Flynn said workers compensation insurance “almost killed us,” with an insurer trying to classify Novus as “manufacturing” or “technology” before company leaders convinced the insurer that the company fit best in a warehousing category.
Another concern was legal risks presented by sales of used devices with unlicensed or pirated software installed on them. Flynn said the insurer wanted a $3,500 premium for software coverage, with the premium amount based on the revenue that Novus earns from reselling computers. Seeing uncertified companies selling pirated software, the insurance company refused to budge on the coverage, despite Novus insisting it does not sell computers with pirated software, he said.
“We’re seeing that as the one point that we’re just not able to argue our way around,” he said.
Most of Novus’ coverage is now consolidated under Travelers Insurance, he said, except for a pollution rider the company was forced to pay for this year. Travelers was too expensive for that coverage, so Novus went with a third party.
“That was another one that kind of caught me off guard,” Flynn said.
Fire concerns bedevil MSW recycling
E-scrap and ITAD companies aren’t the only ones facing insurance complications in the wider recycling sector.
Materials recovery facilities (MRFs), which sort recyclables collected curbside from homes, also face significant fire risks. When placed in curbside recycling bins, batteries end up on tip floors, where trucks and front-loaders can damage them, sparking fires below giant piles of mostly paper and plastic. If they get into the sorting equipment, they present significant risks there, too.
“The second you said ‘recycling,’ they wanted nothing to do with you.” –Andrew Rubin, President of FCM Recycling
Millennium Recycling, which runs a MRF sorting residential recyclables, and its sister company, Secure Enterprise Asset Management (SEAM), an ITAD and e-scrap recycling company, have generally found high prices and little competition among insurers.
“Premiums are high and there’s only a few carriers to choose from,” said Shannon Dwire, president of Millennium Recycling, adding that “those who have had fires tend to lose their coverage.”
Jake Anderson, owner and CEO of both Millennium and SEAM, said he’s expecting his rates to jump substantially, but doesn’t yet “have a firm handle on how significantly it will impact us at Millennium.”
Fire concerns are at the center of the trend toward higher premiums for recycling firms, said Edwards, the Oklahoma BancFirst agent. He works with Tulsa, Okla.-based American Waste Control.
A 2021 fire at that company’s recycling facility and transfer station, sparked by a lithium-ion battery that fell into a belly pan below a conveyor line, destroyed one sorting line and caused over $2 million in electrical damage. It took nearly a year for the site to get back up and running, and the incident upended Tulsa’s recycling program in the meantime.
Edwards said that as more insurance companies reevaluate coverage options, some providers are asking recyclers to pay to bring in a specialist to conduct a risk assessment before offering insurance terms. He’s seeing some processors layering insurance by buying policies from different companies to cover different aspects of the business.
“That leads to more cost, higher deductibles generally, and then come claim time, you’ve got six insurance companies to deal with instead of one, and that is a little bit cumbersome,” Edwards said. “It tends to result in a longer payout process.”
Taking steps to bring down rates
Companies interviewed said they have made – or are looking to make – investments in technology to mitigate fire risk and reduce insurers’ concerns.
Edwards said in Tulsa, American Waste Control installed fire suppression systems that remove oxygen from small electrical rooms when a hot spot is detected. That can stop a fire while protecting the circuitry from damaging water or foam.
American Waste Control also decided to install Fire Rover, a system that remotely monitors for hotspots using infrared cameras and can target a blast of either foam or suppression liquid to the base of a fire, once detected.
“Those two steps were the keys for us to overcome having a 10-plus million dollar loss and insurance claim,” Edwards said.
In the e-scrap world, FCM found that its substantial investments in fire detection and mitigation technology brought insurance companies back to the table.
The e-scrap company invested hundreds of thousands of dollars in technologies, including heat detection cameras that are connected to a computer and can automatically shut down the processing line if it detects heat over a set temperature, said Rubin, FCM’s president.
FCM also installed sprinkler lines along the conveyors, as well as large Class D fire extinguishers throughout the building. For areas that aren’t easily accessible, the company installed a system that dumps carbon dioxide into the room, smothering fires but forcing all workers to evacuate as well.
Finally, FCM installed a trap door in the roof that automatically opens and limits smoke damage during a fire. That “was a really big one that [insurers] liked,” Rubin said.
Those investments, coupled with the fact that FCM hasn’t had any fire claims, opened up insurance options and lowered premiums noticeably, he said. But the bigger financial benefit is simply avoiding lost operating time that would come in the wake of a major blaze.
“I would say our return has been far more on the lost time savings than the insurance premiums,” Rubin said.
Like FCM, URT is also looking to technology to help mitigate risk and unlock insurance options.
“We’re definitely bringing in outside consultants just to look at where we can improve,” said Thomas, URT’s president.
The company will look to upgrade its sprinkler system to alleviate insurance provider concerns about whether the systems would be sufficient to address a plastic-fueled fire. Once those are upgraded, URT hopes to re-engage with some of the insurance providers who weren’t interested in talking, with the goal of bringing down future rates, he said.
Additionally, URT wants to explore automated heat-detection technologies, as well as a carbon dioxide dumping system.
“We’re definitely going to be exploring the removal of oxygen as a method for fire suppression,” Thomas said.
One issue URT faces is finding insurance companies that provide policies in the four states where URT operates: Wisconsin, Oregon, New Hampshire and Texas, Thomas said. Often, companies will sell policies in one or a couple of the states but not all.
Technology won’t solve that problem, but getting creative in shopping the market might. URT is going to explore using different regional providers to cover each facility, rather than one national company to cover them all, he said.