Waste worries local authorities as Brexit looms

According to government national statistics published in November 2019, local authorities in the UK managed 25.6m tonnes of waste in 2018 to 2019; 10.8% of local authority collected waste was sent direct to landfill, while 42.7% was recycled.

These figures, however, could soon be on the up as some waste recycling and management plants pass the buck of local authority contracts in light of the potential Brexit trade deal impacting the cost of exporting UK waste to countries such as Holland and Poland for processing.

According to Rod Penman, head of public services at Zurich Municipal, although local authorities have a statutory duty to collect and dispose of waste, many will outsource this service to private organisations. Furthermore, Penman predicted that around 60% of UK waste is then recycled in European Union (EU) countries, after being taken to council-run tips, for example.

But, here’s the Brexit-related rub: those in the waste industry are questioning whether the Brexit trade deal will impose a tariff on the exportation of UK waste to the EU. It is this, Penman told Insurance Times that could significantly increase the costs for private UK companies transporting waste abroad.

“It could become unsustainable, the profits for those organisations will disappear – they will just walk out of the market,” he explained. “[That] would leave local authorities with a problem because they still have the statutory responsibility to manage the waste and recycle the waste.

“It’s this vicious cycle; none of us know exactly what will happen.

“What we have seen is a number of organisations who have been operating waste recycling plants and waste management plants have actually exited the contract with local authorities and handed that risk back to the local authority.”

Gabriel Fay, senior associate at DWF Law, agreed: “A lot of our waste is, for example, processed in Poland and eastern European countries. That very much relies on the free movement of goods. It’s a big commercial enterprise.”

Fay described the possible tightening on the movement of waste as “a real concern for local authorities”.

High-risk danger

The problem for local authorities, should this scenario occur, is that waste is considered a high-risk area to insure because it is very susceptible to fire, in particular because of items such as recycled tyres.

“The insurance of waste management plants is a problem in the market,” Penman said. “They’re susceptible to fire and history is littered with significant fires in these sorts of buildings.”

This potential problem could affect the reinsurance market too, continued Penman.

“The value of the plants is big, therefore organisations have to reinsure the risk and it’s the reinsurance market [that does not] like waste risks, therefore premiums are extremely high,” he added.

The impact here on local authorities would be a possible restriction in market capacity, leading to the need to self-insure, or being forced to pay extremely high insurance premiums to reinsure waste risks. Recent austerity and budget cuts in the public sector, however, make these options undoubtedly unattractive.

“Local authority budgets have been cut considerably; [local authorities have] had to use their reserves to pay for other services, so some of them may have to just run with the risk and self-insure if the market was to contract that way,” Penman said.

And, although local authorities may be aware that this situation could be on the horizon, Fay does not think many will take action at this stage. “Are they going to spend money which they don’t currently have preparing for [this]? No, I don’t think they will.

“We’re going to end up in a situation where there’s stockpiles of waste in certain local authorities; that’s got to be a possibility.”

Understanding the challenge

But, is there any way that local authorities can protect against or mitigate this potential issue?

“They would certainly need to consider their reserving policies,” Fay advised.

For Penman, on the other hand, “it’s very much about risk management.”

He continued: “The encouragement would be that we work with insurers to make sure that the risk mitigation factors are there within the building to prevent a loss. Those that do that, of course, will get the better premiums.”

This could include, for example, ensuring the building has sprinklers or that skips holding waste are mobile, so that if a fire starts in a skip, it can be taken outside of the building.

Penman recommended that local authorities have detailed discussions with their broker and insurer, so that all parties fully understand the risks being presented and that the sums insured are correct.

“We all need to work with the local authorities to understand the risk that’s there and not run scared,” Penman concluded.