Timber’s Unseen Risk: Protecting Assets from Natural Disasters Amid Limited Insurance Options

Will Wilson Jr. is a principal at Oakbridge Insurance Agency, specializing in proactive risk management and insurance solutions for Georgia’s timber industry. He is based in Savannah, Georgia.

Given the recent pace of natural disasters, you may not remember Hurricane Michael specifically. To refresh, in October 2018, Michael was a Category 4 storm that came ashore on the Florida panhandle and damaged or destroyed between 40,000 and 60,000 homes. But Michael’s wrath lasted far beyond the immediate, tragic impact: The storm felled 10 billion cubic feet of timber — enough to frame 3.4 million houses, according to the U.S. Forest Service.

Today in my home state of Georgia, we are reeling from Hurricane Helene, which last September damaged 1.47 million acres of timber, including 26 million tons of pine valued at $728 million and 30 million tons of hardwood valued at $555 million. The downed timber creates a glut in the timber market, driving down income for both landowners and producers. At the same time, operating costs drastically increased as a result of navigating around all of the downed timber. Furthermore, supply in the milled timber markets was depleted, pushing consumer costs higher.

Understanding the Timber Industry’s Unique Risk Profile

For timberland  owners, managing a forest is a long-term commitment that spans decades. Timber trees typically require up to 25 years before they can be harvested, making timberland ownership fundamentally different from agricultural sectors where crops are harvested annually. This extended timeline means that timber owners face a unique set of risks, many of which are beyond their control, and these risks are compounded by the increasing frequency and intensity of natural disasters.

Timberland is a generational asset. While an individual owner might only harvest timber once or twice in their lifetime, their stewardship impacts the forest for future generations. These long-term cycles require careful planning, strategic investment and, above all, risk management strategies to mitigate potential losses over decades. This becomes even more pressing in the face of increasingly unpredictable weather patterns and natural disasters.

Given that timber is not covered by the Federal Crop Insurance Program, how can the timber industry protect itself? For now, the answer is limited to investing in traditional practices that can shield forests from natural threats, exploring the thin insurance options that exist and creating something new.

Protection: Traditional, Insurance or Creative

Big threats to timber include drought, fire, pest infestation, ice and wind.

Traditional methods to minimize risk of fires focus on removing their fuel – such as creating fire breaks, which are wide, open areas without vegetation, as well as removing weak and diseased trees and engaging controlled burns, according to Rayonier, a timberland real estate investment trust (REIT).

Other fire protection practices, such as spacing trees a certain distance from each other and diversifying the types of trees in a particular area, overlap with ways to protect against pests that kill trees. Land managers can also employ chemicals and pesticides, which a forestry professor from the University of Idaho calls “a balancing act.”

Diversifying your portfolio of timber geographically can spread the risk but may not be practical. In addition, depending on how much spread there is between your stands, it may lack effectiveness as well.

As noted earlier, timber is not a covered commodity under the Federal Crop Insurance Program against any perils. Research suggests the government won’t insure timberland because, unlike annually harvested crops, the decades-long growth cycle of trees means that prices fluctuate significantly between when a tree would be valued and when an insurance policy would pay out.

As has happened after other natural disasters that are not covered by insurance, the federal government may step in. U.S. Representative Buddy Carter of Georgia has introduced the Disaster Reforestation Act, which would amend the tax code to recognize the value of destroyed timber.

“A single storm can wipe out a generation’s worth of investment into a private working forest,” Carter said in announcing the bill. “Many foresters are unable to replant following a loss, causing a supply chain crunch in the lumber market, economic strain on local economies, and environmental harm due to lack of forestland. The Disaster Reforestation Act will protect foresters from the worst impacts of natural disasters, ensuring timber farming is a viable way of life and protecting the many jobs, products, and positive environmental impacts this industry provides.”

While timber companies would be grateful for this kind of governmental support, relying on this possibility can’t be their only game plan.

Limited Insurance Options: A Closer Look at Available Coverage

There are virtually no viable insurance products in the market that protect timber stands. A handful of insurers offer two types of timber insurance, according to professors at Mississippi State University Extension, but their financial benefits are limited. A standing timber insurance policy can cover a forest for the last three years before it matures, they write, but it “is generally not considered to be a financially viable option over the life of a forest because the premiums paid would negate all potential profits.”

Reforestation insurance covers the cost of replanting a forest after certain disasters, the professors added, noting it could be helpful for landowners in the first years after their seeds are in the ground.

A time gap appears to exist between insurance covering reforestation for early-growth timber stands and standing timber insurance for those nearing maturity. Parametric insurance or catastrophe bonds, which are more like gambling than insurance, won’t suffice.

Oftentimes, tragedy sparks innovation and creation. We are currently working alongside the key stakeholders to develop a product to protect their lengthy investment.

Other ideas should be explored too – and soon – before more storm clouds appear on the horizon.