Covering Biodiesel

IMA Financial Group Inc., an insurance brokerage company, doesn't just work with biodiesel producers-it makes it a priority to understand the industry and educate insurance providers about the growing biodiesel industry. Within its dedicated Biofuels Practice Group, IMA associates focus on services biodiesel producers need.
By Holly Jessen | July 01, 2006
At a time when many conventional insurance companies might be challenged to keep pace with the unique requirements of the fast growing biodiesel industry, existing and future producers are increasingly seeking out firms that dedicate people, time and resources to the demanding field in which they operate.

For those in the business of biodiesel production, however, finding expert, tailored insurance services hasn't always been possible. Now, IMA Financial Group Inc.'s Biofuels Practice Group is on a mission to change that. The insurance broker's biofuels-focused team is making a name for itself as one of the industry's biodiesel plant insurance brokers. It's doing so by proactively identifying the insurance needs of producers and giving its clients a competitive edge by helping them manage risk and obtain-if needed-insurance coverage. "We're not proposing to be good at everything," says Jeff Grace, IMA account manager. "We are proposing that we're good at a few things, and one of those [things] is taking care of our ethanol and biodiesel clients."

Officially formed less than a year ago, IMA's Biofuels Practice Group has been building a solid background of service within the industry for more than three years, says David McKinney, account executive. After first providing insurance brokerage services to the ethanol industry, the group started working with biodiesel plants in 2005. Like so many service providers that got their biofuels feet wet in the ethanol business before making a leap into the smaller, but equally upward-bound biodiesel business, McKinney says the Biofuels Practice Group once found it difficult to negotiate optimal insurance coverage at affordable prices for ethanol plants. "Most of the insurance companies didn't want to have anything to do with ethanol because it was a new industry that had no history," he tells Biodiesel Magazine.

The company worked to find insurance markets willing to at least consider writing insurance coverage for ethanol plants. As an insurance broker, the group helped educate insurance companies about ethanol. Once the companies had a better understanding of ethanol plants and the overarching risks the industry was facing, it was easer to find companies willing to provide insurance coverage, McKinney explains. Now, ethanol has a much firmer foothold as an established industry. The biodiesel industry, however, is still going through many of the same growing pains ethanol weathered. "Biodiesel is where ethanol was three or four years ago," McKinney says, reiterating a variation of a statement made so frequently by firms serving both industries. "It's considered a relatively new industry from an insurance standpoint. They don't know a lot about it."

The good news for biodiesel producers is that it's not going to last forever. As time goes on, more and more insurance providers are willing to provide coverage for producers. "There's more of a marketplace now than there was even four or five months ago," McKinney says. "We expect that that will continue to expand, which is good for the biodiesel industry."

IMA is ranked as the 16th largest privately held insurance brokerage group in the nation. The 30-year-old company has 400 employees in seven offices and provides risk management services to many different industries in all 50 states. IMA's Wichita, Kan. based Biofuels Practice Group focuses solely on the biofuels industry, however. In all, the service group includes 10 IMA associates. The group is an associate member of the National Biodiesel Board as well as national ethanol-related associations. "We truly have a specialty unit that is dedicated to servicing [the biofuels] industry and this industry only," Grace says.

IMA's Biofuels Practice Group is working with more than 50 biofuels plants in the United States, either those on line, under construction or being developed. That includes more than 1.9 billion in insured property values representing more than 1.6 billion gallons of biofuels, most of which is ethanol. However, the biodiesel side of the business is growing, Grace says.

Delivering Insurance Knowledge
In its work in the biodiesel industry, IMA has found there is a lack of understanding of the types and levels of insurance that should be considered by biodiesel producers, McKinney says. That's especially true of the smaller plants-7.5 MMgy or less. "What we're finding is that either they are having to go without coverage because they couldn't find a market, or that the market that presented them with coverage is overpriced, quite honestly," McKinney says.

Not realizing what options are out there or what is needed, a producer might not consider directors' and officers' coverage, for example, which protects the board of directors in the event of a claim against the company. Or, for instance, a producer might not look at carrying builders risk insurance to protect the company if something happens during construction.

Since many facilities are located in rural areas, most of them end up dealing with a local insurance broker. While that may be good from a relational standpoint, the broker probably isn't familiar with good insurance markets and coverage needs of the biodiesel industry. "It's extremely important that the broker understand the business, and that's true whether it's biofuels, restaurants or contractors. The broker that understands that industry is always going to get you the best deal coverages and prices," McKinney tells Biodiesel Magazine, adding that in a newer industry like biodiesel, it's particularly important.

In contrast, as well as having a solid biodiesel knowledge base, IMA operates as an independent agent, meaning it works with more than 40 insurance groups that represent more than 150 other insurance firms, McKinney says. Out of that number, perhaps 25 of those companies would be willing to consider providing coverage to a biodiesel facility. From those, there might be five that offer the right pricing and coverage for a particular facility. "The key is that we start out with a large number as opposed to just a single company that we can go to," he tells Biodiesel Magazine.

Before and After Start-Up
With literally hundreds of check-off items to consider when developing, building and operating a biodiesel plant, insurance needs can easily be neglected. McKinney and Grace say they understand that. "The insurance issue isn't the largest issue these guys face by far. It's not even close. But it is an important issue," Grace says.
As an insurance broker, IMA helps biodiesel producers understand the various exposures, or risks, and helps them manage risk, perhaps through insurance. Physical risks, such as injuries to workers or third parties may be part of that, Grace says.

Having the proper insurance coverage is critical in negotiations with stakeholders like lenders and builders, McKinney says. The broker can help its client understand the insurance requirements included in those and other contracts. That's why it's so important for producers to select an insurance broker before the first shovelful of dirt is moved. The broker can work with the producer by helping plant owners, developers or management understand the impact of plant location, feedstock, transportation and offtake agreements, Grace says. Those things, in the end, have an impact on coverage and price.

IMA does a lot of work up front, before construction starts, to make sure all insurance requirements are met, McKinney says. If the contractual requirements with the lenders or contractors aren't met, financial close can be delayed or jeopardized. It's like buying a home. The lending agreement contains things that are critical for the buyer to know, including things that could affect whether the loan goes through. "You just need to be sure you know what you just signed," McKinney says.

Of course, the company also works to align the insurance needs of its clients with what insurance companies are willing to provide biodiesel plants. In all, IMA's contractual analysis services have the biggest impact on it's producer-clients. "That is where we spend a tremendous amount of our time, honing our trade, if you will," Grace says.

Beyond making sure all the contractual i's are dotted and t's crossed, working with an insurance broker in the pre-construction phase of project development has a positive impact on overall insurance costs, McKinney says. For example, if a biodiesel plant is well-protected in terms of water supply and fire protection, it can positively impact the cost of property insurance. "If you'll think of those things early in the construction phase and integrate those in the construction process, then at the end, you are much more likely to have a great availability of markets and a much better price," he says.

More important than insurance premiums, however, is making sure the facility has adequate insurance coverage. "The bigger, long-term issue to me is, 'Are you adequately insured based on your exposures, or are you not?'" Grace says. "If you are not adequately insured, then you are going to have bigger issues to face than your insurance premium."
For more information, check out IMA's Web site at or call the company's Biofuels Practice Group at (316) 266-6290.

Holly Jessen is a Biodiesel Magazine staff writer. Reach her at [email protected]
.com or (701) 746-8385.
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