At Keith D. Peterson & Company, lumber tariffs aren’t a distant policy concern – they’re a direct operational threat. Amid surging raw material costs, redirected exports, and inflationary pressure, Connor Peterson (pictured) sees one constant: “Claim settlement costs are going to increase.”
With stock values and rebuild costs both climbing, insurers face mounting challenges in underwriting and claims accuracy. “There’s only so much domestic supply for lumber,” Peterson said. “But then there’s also a vast majority of subcomponents that are coming from outside the US.”
Insurers are being squeezed from both ends. On one side, the cost of claims continues to rise – fueled by inflation and a fractured supply chain. On the other, market volatility is pressuring investment portfolios. “Insurance carriers have had to reduce the amount of exposure they have to... equities,” Peterson said, citing a shift toward safer holdings like bonds and mutual funds. This shift could make underwriters more cautious – especially when it comes to high-hazard occupancies.
That caution is rippling into the field. “If there is a property loss, it’s going to cost more to fix it,” Peterson said. And valuation gaps are widening, especially for clients relying on outdated cost models.
For insurers and their clients, the biggest wildcard remains Canadian lumber. If domestic stock is depleted, refilling from Canada means triggering softwood tariffs as high as 40%. “That is a valuation issue,” Peterson said. If policies don’t reflect these inflated costs, clients risk falling into co-insurance penalty territory.
COVID-era overstocking hasn’t gone away – it’s just evolved into another layer of insurance complexity. “It’s not necessarily good to just have a significant amount of stock sitting out, exposed to the elements for an extended period of time,” Peterson said. Yet many businesses lack the warehousing capacity to do otherwise.
“Is that excess stock covered on the policy?” he asked. “Secondly, how do you value it?” With values fluctuating dramatically from quarter to quarter, even regular policy reviews may be inadequate.
Peterson pointed to structural changes, as well – especially in export destinations. US hardwood once bound for China is now redirected to Europe and Vietnam. If those markets are saturated, domestic producers could see price drops that further strain insurance coverage calculations.
Small and medium-sized wood businesses – often family-run – are particularly vulnerable. “They’re already doing everything they can to survive,” Peterson said. Few can afford the capital investments needed to shift from consumer goods to industrial output like railroad ties or timber mats.
Some are trying, but it’s rarely strategic – it’s survival. “Rarely have hardwood manufacturers, especially the small ones, made so much money that they could... invest in the most advanced systems.”
As talk of a softening insurance market builds, insurers face a dilemma. “A lot of companies would then try to start looking to make up that rate through higher hazard occupancies,” Peterson said. But with investment portfolios turning conservative, carriers may tighten their risk selection, leaving some occupancies to be written only through specialty programs – if at all.
Carriers are also reassessing their broader role. The US government’s trade approach can shift quickly, and many clients burned by previous tariff regimes are now asking how to prepare for the next. There’s no easy answer. “How do I prepare for an event like this in the future?” Peterson said, highlighting a question shared across the industry.
For brokers, underwriters, and insurers alike, the message is clear: reactiveness won’t cut it. Policies must keep pace with volatility – from lumber valuations to investment returns. That means reassessing coverage quarterly, building flexibility into terms, and helping clients anticipate – not just respond to – market shifts.
Because as Peterson put it, “There’s a lot of questions. There’s a lot of uncertainty.” And in the wood sector today, uncertainty is the only constant.
