It was a little after 9 p.m. when the fire started. A welding project to repair an iron-truss roof support had been completed under the clapboards of an old wooden roof over the 75-year-old foundry––30 minutes later, slag from the welding ignited.

Loss-control engineers had previously cautioned about the potential hazard of dry wooden beams, and warnings became reality when evening winds fanned remnant sparks in the wood into a rolling fire across the roof. Within hours, the entire roof was engulfed and collapsed into the facility. The owners made the hard decision not to reopen the plant, which put hundreds of people out of work.

This devasting loss is only one example of a number of fires that appear in a search engine for foundries and metalcasting operations. These examples and their severity are part of the reason property insurance is so challenging for foundries today.

In the evolving landscape of insurance, especially property insurance, metalcasters face unique challenges that necessitate specialized insurance and risk engineering strategies. So, let’s explore the critical aspects of insuring your foundry, types of insurance programs to consider, the reinsurance dilemma, and the proactive steps metalcasters can take to improve their insurability and secure favorable insurance terms.

Market Update and Underwriting Concerns

Let me start by saying, it’s not all bad news! Not everything regarding insurance for foundries is dire. In fact, some of the insurance program rates we are reviewing continue to decline in cost with more favorable terms.

Workers’ compensation and cyber insurance rates continue to decline or remain steady in most jurisdictions.

Casualty lines for general liability, commercial auto and umbrella are experiencing marginal market increases, with commercial auto remaining the most challenging.

And as many foundries know or have experienced, property insurance remains the most challenging line of insurance for foundries. The lack of insurance companies interested in the industry remains a genuine issue.

Nevertheless, there were positive signs for foundries as we saw declines in rates in the fourth-quarter 2024 as reinsurers looked for opportunities for growth.

Increasing Catastrophic Events

Several contributing factors have impacted the property insurance market, and one of the most substantial is the frequency and severity of catastrophic events that have surged. This significantly affects the property insurance market, especially for perceived high-hazard classes of business. In 2023 alone, the U.S. experienced numerous catastrophic property losses, which have strained the reinsurance market and led to increased premiums and reduced coverage availability.

Reinsurance, a critical component of the property insurance market, has faced substantial challenges. The standard market property insurance reinsurance outlook has shifted dramatically from 2022 to 2023, with carriers reducing their reinsurance capacities. For instance, Carrier X’s reinsurance capacity decreased from $50 million to $30 million, underscoring the tightening reinsurance market. 

In 2024, we saw softening in the reinsurance market, especially towards the latter half of the year. Even though market indexes predict further relief, I am not expecting a tidal shift toward a lower rate per $100.

Why Metalcasters Find Insurance Challenging

Loss History. The metalcasting industry has experienced significant losses, with at least nine foundry fires reported in 2023 and 2024. One foundry was destroyed and is not being rebuilt, underscoring the high-risk nature of the industry.

Higher Hazard Factors. Several factors contribute to the higher hazard classification of metalworking compared to other industries. These include the lack of sprinklers, high total insured values at each location, furnace exposures, construction types, protection classes, geographical locations, business continuity challenges, and chemical storage risks. Furthermore, OSHA is taking a renewed interest in foundries and recently levied $900,000 in fines to a New York iron foundry for safety concerns.

Types of Insurance Programs to Research

As a buyer of insurance for your foundry, there are several types of insurance programs to choose from. Below are a few to consider and pros and cons of each. Please discuss these in more detail with your insurance broker.

Guaranteed Cost. This is still the insurance many operations are familiar with and have experienced in the past. Guaranteed cost insurance is a type of insurance in which the insured pays a fixed premium for a period (usually one year) and regardless of the number or amount of losses that occur, the insurer agrees to cover all losses up to the policy limits.

Large deductible. When I say “large” I mean deductibles starting at $100,000 per occurrence and many of these programs are typically at $250,000 per occurrence. Of all the lines of insurance, you are likely to see this type of program presented to you for your property insurance. Large deductibles provide you with the opportunity to lower your fixed cost (premium) by taking on additional risk.

Captive Insurance. Captive insurance is insurance where a company or group of companies form their own insurance company to insure their risks. There are numerous types of captives, from single-parent to 831(b) and group captives. The benefit of a captive is a more customized insurance product for your operations and lower net costs. The risk is, if your operations cannot control claims, then a captive could cost you more money than a traditional program. Further, if you are considering a group program, you will also be risk-sharing among the other owners––it is imperative to know who your partners are going to be. 

Proactive Risk Management Is Critical 

An important question is, what can you as a foundry/metalcasting operation do to put your company in the best possible light for insurance?

Metalcasters should consider a more proactive risk management approach to change their narrative and enhance their insurability. Underwriters love it when they hear your story about what you and your team are doing to make your operations safer.

A few essential proactive measures include:

1. Respond to loss control recommendations. Addressing and/or responding to recommendations has never been more critical. If a recommendation cannot be accommodated, it is helpful to have open dialogue with the broker and risk engineer to explore alternative solutions. These reports have a long shelf-life, and underwriters want to see that you are making your facility safer.

2. Chemical storage management. Ensuring safe storage and spill containment of chemicals is scrutinized closely by insurance carriers. Use of IBCs (intermediate bulk containers) on perma-mold lines is important, and insurance companies expect best practices concerning loss prevention–– especially considering many of these IBCs contain flammable liquids.

3. Infrared scanning (IR). Regularly (as in yearly) conducting IR scans to detect potential issues is viewed favorably by insurance carriers.

4. Hot works. Back to my example at the beginning: an effectively-managed hot works process is required by underwriting.

5. Interlocks and Hoses. Carriers are familiar with hoses coming loose and causing ‘fire throwing’ losses. Hence, they scrutinize interlocks and hose material. They want to see your PM schedules and records for testing equipment.

6. FM-approved hydraulic fluid. It is recommended to utilize approved hydraulic fluids to reduce fire risks. 

7. Business continuity planning. Developing and maintaining robust business continuity plans is required these days.

These plans require detail to show the underwriter what exactly is in place in the event of a loss. Typically, a dollar amount is associated with this plan, and they want to know exactly how that was computed. If it is too low (in their opinion), expect pushback based on their own computer models.

8. Emergency response planning. Prepare comprehensive emergency response plans and do practice drills. You want to demonstrate how you are going to keep your employees safe and mitigate the cost of a claim.

9. Maintenance plans. Establishing and tracking regular preventative maintenance schedules is critical. 

10. Valuation adequacy. Ensure accurate property valuations on your statement of values, which includes the replacement cost of your buildings and the replacement cost of your equipment. Using a third-party assessment company to provide these figures is worth considering.

11. Sprinkler system. Installing and maintaining effective sprinkler systems in non-molten areas is often recommended, especially in the mold storage and repair areas. Do not forget about dust containment too––many insurers want spark detection and sprinklers in those systems as well.

12. Fire department coordination. Familiarize local fire departments with the facility layout and molten hazards.

 13. Near miss program. Creating an internal near miss program can help prevent larger events. This is frequently done with workers’ injuries but can be expanded to property and other lines as well.

14. Managing independent contractors on premises. Implementing proper risk transfer agreements, requiring certificates of insurance, and training are all highly recommended.

Third-Party Risk Engineering

Metalcasters have some of the best EHS specialists in their operations. However, that does not mean you know or understand all exposures.

Utilizing third-party risk engineering firms is a strategic tool for metalcasters to assist with insurability, and it provides a fresh set of eyes on your operations. These firms provide detailed property and safety engineering reports that include recommended improvements and estimated loss scenarios. Such reports are essential for underwriters to calculate probable maximum loss (PML) estimates and make informed underwriting decisions. Without these reports, underwriters are unable to truly assess and may lean toward a worst-in-class evaluation––they might decline to quote or quote higher premiums. 

The metalcasting industry faces unique risk management challenges that require specialized insurance and risk engineering strategies with a broker/partner who specializes in metalcasting. By understanding the market dynamics and adopting proactive risk management practices and working with our broker, metalcasters can improve their insurability, change the industries’ loss history narrative and secure more favorable insurance terms. Collaboration among brokers, underwriters, loss control specialists, and third-party risk engineers is essential to navigate the complex landscape of property risk management effectively.