Food processors are spending millions of dollars on fire prevention measures after insurers hiked premiums in the wake of a number of fires which caused costly claims because of the flammable panels used in coolstore facilities.
Expanded polystyrene [EPS] panels used in coolstore facilities by the kiwifruit, apple and meat industries have been found to be highly flammable and have been blamed for two highly destructive fires in Australia.
In 2018 Thomas Foods International's abattoir in Adelaide was destroyed causing millions of dollars worth of damage after sparks from welding ignited the combustible panels.
That followed a 2016 fire at the Swickers Bacon Factory in Queensland.
Richard Shehean, head of corporate and sales at insurance broker Marsh New Zealand, said that had resulted in premium increases of 30 to 40 per cent for food processors with those panels.
Shehean said EPS panels were very good for insulation and cleanliness but highly flammable.
"The problem is if you get a fire in it, say there is a crack in a panel the fire will get in the panel and the whole building will go because it will just burn through the panelling - it's highly flammable on the inside and the fire service just won't go in and put the fire out- they will let the building burn until it's gone."
He said business with a lot of EPS panels were facing higher premium costs and were having to take on higher excesses.
"They can still get it [insurance] but it is quite expensive. Expect to pay more and have reduced capacity - possibly insurers are proposing bigger deductibles on the sites as well."
A deductible is like an excess which means businesses will have to cover more themselves if there is a fire before the insurance kicks in.
Merv Dallas, chief financial officer, EastPack - which has one of the largest Kiwifruit packhouse businesses in New Zealand said fire risk from EPS panels it had "absolutely" increased its insurance costs.
"What is has meant is insurance premiums have gone up significantly."
"We are not quite at 30 per cent [rise in premiums]."
But in terms of the EPS component of its premium it had gone up about 25 per cent, he said.
Dallas is hoping that will come down over time as the company works through its remediation programme. It is spending $7.5 million over three years to try and reduce its risks.
That includes installing sprinklers at its cool stores, putting fire retardant coatings on the panels and installing water tanks and power supply systems to get the water to the sprinklers.
Dallas said it was a massive engineering process and in some cases the process for getting consent from the local council was taking longer than the installation.
He said it was hoped the remediation would reduce its premiums although Dallas said it was unlikely they would go back to the same level due to a tightening in the insurance market in recent years.
"But they should go down to a much lower risk rating."
Dallas said it couldn't cut back on its insurance cover as the banks required the buildings to be fully insured.
"It was not something we even considered." He said shareholders would also have not been keen.
Stuart McKinstry, chief financial officer at Seeka, another major player in the kiwifruit industry, said it was putting in fire suppression systems around its hot plates which cost around $2.5m per building.
It wasn't possible to install sprinkler systems at all its sites as they had to have good water sources and that was not always possible in rural areas.
McKinstry said its insurance costs had risen from around $1m to around $3m over five years although it had also acquired more assets in that time.
He said the biggest challenge was getting enough insurers to cover them. The business had always needed more than one insurer because the value of its assets were so high.
"Essentially in New Zealand an insurance company will only take a certain amount of cover before they have to off lay it and it is getting harder and harder to find people that will take up significant parts of the cover.
"Now we have four or five insurers - you still get one lead but they are prepared to cover less and less."
McKinstry said it had to keep spending on remediation just to make sure it could get insurance.
"I think realistically it will mean we can continue to have insurance which is the main thing....without doing it, people just don't want to insure us."
Sirma Karapeeva, chief executive of the Meat Industry Association, said insurance had been a significant cost for the industry for some time.
"While we are unaware of any recent premium increases directly related to these panels, we do know some underwriters are withdrawing from providing this insurance following losses in panel buildings in Australia and the UK.
"Some companies are choosing to install fire resistant panelling when building new or upgrading existing facilities.
"Meat processing companies also have strict operating practices for anyone working on or near panels, sophisticated fire detection systems and fire sprinkler systems, where practicable."