Before Disaster Strikes: Making Sure Your LBM Business is Insured to Value

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It’s something business owners don’t like to think about, but it does happen. A fire or other devastating incident could cause a business to come to a complete halt. Any significant event could leave inventory heavily damaged and force businesses to pause their operations.

While many might take comfort in having insurance and remembering their premiums were paid on time, they may not realize a static policy or just making the payments is not always enough. With the economy in flux and building materials and labor costs at sky-high levels, many business owners are finding out the hard way that they were underinsured. For too many, that means rebuilding or getting operations fully back in order may cost hundreds of thousands of dollars beyond what insurance will pay.

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It’s an all-too-common scenario across industries. In fact, a staggering 75% of US businesses are underinsured, as reported by an Insureon survey.

Fortunately, owners of lumber and building material businesses can take steps to protect their businesses by reassessing and updating the values on their insurance policies.

Understanding the Problem

When insuring a lumber and building material dealer, a multitude of factors need to be considered to make certain the coverage reflects the business’s risk exposure. For example, while they may not want to, business owners must look beyond the original price paid for a piece of equipment or a building.

Think about a homeowner’s policy: A homeowner may have paid $450,000 for a house five years ago and insured it then for the 2017 assessment of its total rebuild cost of maybe $350,000. With lumber and other building supply costs now through the roof, that same homeowner should expect the rebuild cost to be significantly higher, maybe as high as $500,000. If the homeowner is only insured for $350,000, that extra $150,000 would be the homeowner’s burden to bear. It’s no different for business owners.

To avoid this problem, business owners should evaluate their exposures as they stand today by assessing the total insured value of their exposures and comparing those figures to their current insurance limits. It is an aspect of any business that needs to be regularly maintained, reevaluated and adjusted accordingly – particularly in today’s economic climate.

One of the most common mistakes a business owner can make during an evaluation is guessing or “ballparking” the value of something. It is critical that evaluations are done with a full picture of the business in mind including an accurate assessment of the exposures presented at each of the business’s locations.

A good first step to getting an accurate evaluation is  seeking assistance from your broker or insurer. For those who prefer an independent assessment, business owners can obtain a third-party certified commercial appraisal. While conducting an annual commercial appraisal can be costly, business owners should consider an in-depth independent evaluation at least every two to three years. What’s key to remember is that the expense of an independent appraisal pales in comparison to reconstruction costs left to the insured when a property is underinsured.

A property and inventory assessment is particularly critical for businesses in the lumber and building material business as we’ve seen business boom in recent years. During the COVID-19 pandemic, demand for lumber and building supplies increased with new interest in home renovations. While many industries saw a slowdown in operations and subsequent decline in revenue, lumber and building material dealer businesses were experiencing robust growth, making investments and boosting inventory.

As a result, a number of lumber and building material dealers added new buildings to their property schedules, doubled inventory and/or purchased new equipment. Often, in such a busy, hectic environment, some operational aspects — like managing an insurance policy — takes a back seat to meeting customer demands. Lumber and building material dealers need to ask themselves, “If almost everything about my business has changed except my insurance policy, will it be able to keep up with my current needs? If my business experiences a loss, will my insurance coverage allow for the time and capital I need to get the operation back up and running without financially damaging the company?”

Don’t Go At It Alone

Lumber and building material dealers are open to a number of unique exposures that make them more susceptible to fires and other high severity incidents – not to mention cyber risk that threatens all industries. The consequences of any of these events can be catastrophic for a business. Insurance exists to give these businesses the funds they need when they need them to resume operations and get back on their feet.

While evaluating a business in its entirety may be a daunting task, it may be easier than you think to find help. Your insurer or broker can help you navigate the evaluation process and help you ensure all your exposures are covered. Consider the following when reviewing whether your business is insured to value:

  • For property coverage, talk to your insurer and consider getting an up-to-date valuation from an independent appraiser. Values should be reviewed and updated regularly.
  • For inventory coverage, consider using a stock reporting form. For example, Pennsylvania Lumbermens Mutual Insurance Company (PLM) provides a stock reporting form that allows business owners to report lumber and other inventory so the insured can keep limits at adequate levels.
  • For business income coverage, make sure to complete a business income worksheet prior to any loss, talk to your insurer to make sure your coverage is on par with your current revenue and total expenses. This coverage can be invaluable when a business faces a loss of income related to a covered loss.

Ensuring your lumber and building material business is insured to value is critical in today’s economic environment. The best way to have peace of mind when it comes to making sure your business is insured to its current value is to consult with your insurer or broker. PLM can help with this process by providing assistance with comprehensive evaluations of your business’s unique exposures.

As the oldest and largest mutual insurance company serving the lumber and building material industry, PLM can provide essential support to your business. For more information regarding our services, including business interruption coverage and more, please visit or contact us at or 1-800-752-1895.

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