From Oily Rags to a Break Room Microwave: Combatting Overlooked Risks in High-Severity Industries

While the risks in a high-severity industry may seem apparent, it is the small details that can lead to the most disastrous losses when they are overlooked. For brokers serving high-severity niches, recognizing and addressing the easily overlooked risk exposures is critical to effective risk management.

At Pennsylvania Lumbermens Mutual Insurance Company (PLM), we’ve seen countless high-cost losses that stemmed from seemingly small risk exposures. Let’s take a look at a few types of claims we have seen recently that could have been prevented with better attention to risk mitigation.

Oily Rag Explosions. Improperly storing oily rags remains one of the most destructive and avoidable risks in lumber operations. Oily rags, whether used in wood finishing operations, on heavy machinery, or for cleaning up, can spontaneously combust. If such rags are not safely stored, they can spread fires throughout a facility–especially with sawdust and other flammable material nearby.

Storing oily rags in UL 300-certified containers will contain any combustion and prevent the spread of fires. This is a fairly simple solution that only costs about $75 to $150.

Break Room Blazes. While break rooms easily can be overlooked in risk assessments, aging appliances have been the cause of million-dollar losses for lumber businesses. It could be a humming refrigerator that sets fire over the weekend or an internal wiring failure in an old microwave that sparks overnight. When small appliances are neglected, they can become major liabilities.

Appliances that are outdated or show signs of malfunctioning should be replaced.

When appliances are not being used, they should be unplugged at the end of the day. One lumber business we spoke to had all their appliances plugged into outlets that were connected to a switch. That way, the last person to leave could cut power to all the appliances, except for the refrigerator, by turning the switch off.

Electrical Infernos. Makeshift electrical setups are another common contributor to large losses. Too often, lumber businesses rely on the long-term use of extension cords and overloaded surge protectors instead of seeking out safe, permanent solutions.

Although these setups may seem harmless, they have been the cause of disastrous fires in lumber businesses. At PLM, we advise against using extension cords or surge protectors as a permanent power source, suggesting insureds hire a certified electrician to install additional outlets if needed.

Building a Culture of Safety

Consistent, intentional housekeeping is the best way to prevent such small concerns from turning into disastrous outcomes and promoting a culture of proactive safety. When employees do not fully understand risks such as stacked oily rags, improvised electrical setups, and outdated break room appliances, it is easy to ignore the humming refrigerator or the frayed outlet strip. Every level of the organization, starting with leadership, should be trained on the impact of daily safety concerns and how to prevent costly problems, particularly in high-severity industries.

A high-severity business’s safety plan should include these small but impactful risks. When documented and discussed regularly, team members will better understand what is at stake and be equipped with tangible, effective tools to address the business’s risks.

Break room policies, electrical equipment inspections, and maintenance standards should be outlined in a formal safety plan and reviewed on a regular basis. Incorporating these items into training and safety briefings ensures they are easily accessible and not forgotten or overlooked.

Broker’s Role in Raising Awareness

While some companies are highly safety-conscious, others adopt a more reactive “we’ll get to it later” mentality. Insurance brokers have an opportunity to highlight the often-overlooked risks to insureds before a claim occurs.

Brokers can emphasize the potential impacts of a claim by sharing examples of claims resulting from preventable issues. Explaining how the business was impacted in terms of interruption and costs associated can help them view these risks as a business continuity concern. If a business is unable to fulfill commitments or bring in new business because of a claim, customers may seek out a competitor. A fire may not just damage a facility; it can cost a business in terms of market share.

A specialty insurer who understands the nuanced risks high-severity businesses face can be an invaluable resource in educating insureds. For example, at PLM, our close familiarity with wood-related operations means we are well-versed in how seemingly minor issues, like break room appliances or oily rag disposal, can result in catastrophic outcomes.

In high-severity businesses, the most dangerous exposures aren’t always the ones that seem obvious. Oily rags, aging kitchen appliances, and overloaded outlets may seem like mundane concerns, but they’re capable of burning down a business. For brokers, educating clients on these exposures is essential. Because once the fire starts in high-severity niche business, the damage has likely already been done.