A surprising conversation took place in December 2014 with an Insurance Underwriter who underwrites recycling businesses where he explained that recycling as an industry could be jeopardised as insurance underwriters, like himself, are pulling out of the market. In the UK, not having adequate business insurance means you cannot legitimately trade. His firm had just refused to underwrite a major local authority’s recycling facilities and in his opinion they were unlikely to find an underwriter. But why?
Recycling Political Tools
The refusal to underwrite a large organisation for its recycling operations sends an ominous message to politicians approach to economy, which is often that of consumer led consumption. With a growing movement towards recognising that the rate of consumption of made goods is unsustainable, government and industry leaders have attempted to offset the increasing worries of waste of consumers by focusing on the recycle and green agendas.
Recycling offers a get out clause for consumption. It gives consumers a mirage of warm glow that they are doing their bit for the environment by recycling all the worthless stuff that they have purchased over the previous day, week, month, which sat in the corner untouched before being readied for the bin. The game of the politician since human society evolved has been to convince people to act in a certain way so the society achieves certain aims. What is proving an interesting insight during the first stage of the Waste.Agency is how the insurance industry has the power to override political will.
Underwriting Refusal
“Put a load of car batteries in a pile and they will catch fire” explained our insurance underwriter. The problem with recycling plants, even well run ones, is that the workers are not always aware of the risks posed by piling certain items together. Sometimes no risk is assumed at all until something actually happens. The underwriter continued that his company had sustained ‘some big losses’ over the previous 18 months as there were a number of instances and large fires around the UK in recycling facilities. Some were caused by poor practice, others just simple accidents and a few ‘probably deliberate’.
One of the problems with recycling is that so many different materials of varying conditions are brought together in one place making for a toxic mix. If something goes wrong, containing the risk becomes that more difficult because of the unpredictability of the material concoction. Fires rapidly spread and the fumes and smoke given off causes disruption to the wider area as the Fire Brigade evacuate local homes and businesses as a precaution. This wider disruption can lead to secondary claims against insurance then just the building fire itself. And it is herein that the insurance industry has become concerned.
Recycling seemingly has a flourishing black market, criminal gangs operate across many of the big cities collecting all kinds of items that were once destined for landfill. This has been spoken about by council waste officers as well as waste operators during other Platform-7 interventions. The main reason it appears is the major increase in prices of secondary goods and items. Where clothes were once either sent to dusty old second hand shops or doomed to become rags for cleaning now there is a sophisticated trade, with clothes sorted and repackaged for specific markets locally and internationally. Fashion trends and the financial crash of 2007 has seen a marked growth in ‘vintage’ ware, providing increasing returns, and this has attracted a criminal element aware of the potential rewards for reasonably low risk of prosecution. As commodity prices have rapidly risen over the last decade so the market for reused metals and other items has increased to offset the price rises of new product.
For insurers, it is becoming a difficult model to fully understand as the lines between ‘illegal’ collection of secondary goods and the ‘legitimate’ recycling organisations mix in the long chain of brokers and on-sellers. Our underwriting source told that around all the large ‘legitimate’ recycling facilities there are a host of shady and ‘sometimes just completely criminal’ smaller operators. The presence of so many such operations in close proximity gives rise to greater risk and the potential of a fire (for example) from one facility spreading to another.
Our underwriter continued that even large companies now have to hold back certain levels of profit to be ring-fenced in case of catastrophe. There is growing apprehension in the industry of the greater consequence of a major fire/explosion at facilities close to crucial infrastructure (road and rail) and in densely populated areas; some recent fires have lead to the closure of motorways and rail routes. There is often trickle down claims as companies and commuters look to be compensated for various inconveniences and lost orders and business. There is concern about air pollution risk and an increasing unease surrounding long-term affects on workers health in waste facilities, and the potential of asbestos-like class action in the future [click here to see supporting evidence].
Potential Upside
If what we have been told becomes industry norm, it will be increasingly difficult for companies and government agencies to seek insurance. For larger organisations, ring-fenced profit and underwriting of risk by central government may prove a possible solution but for smaller companies it will be difficult to continue trading legitimately. Insurers trying to mitigate against employee claims later in life may lead to a completely new approach to working practices.
New approaches to consumption
A more serious scenario spinning out of our conversations is the potential of insurers pulling out almost completely from the recycling industry. In such an event, policy makers would need to rethink completely the entire approach to waste, landfill and incineration. Burying or burning everything is unlikely to be politically acceptable and this could lead to a more complex political discussion regards domestic and commercial consumption, which in turn will focus minds on the whole economic system based on consumption, which the economy presently relies.
*This image is reference only. The underwriter quoted made no reference to any company or local authority by name. The Waste.Agency does not ask visitors the name of their organisation or full details.