Property Insurance in the Wine Industry
As things begin to open back up with COVID-19 getting more under control, we find that it is “fire season” in Wine Country. With fire season front and center, we find ourselves saying that “it’s not if there is another fire in our area, it’s when will the fire occur and where?” How do wineries of all shapes and sizes navigate the turbulent property insurance marketplace? The entirety of 2020 posed significant challenges in the property insurance marketplace due to our previous fires, and 2021 will have similar challenges. Insurers have either scaled back the offering of property insurance in the wine industry, reduced limits of insurance being offered or have ceased writing business altogether. Many wineries have received a Notice of Non-Renewal from insurers while others have seen rate / price increases in their property premiums in excess of 100%-200% or more. Is there any relief in sight and what steps can wineries take to position themselves in the best light to receive a favorable property insurance renewal? While we are not going to be able to eliminate wildfires and fire activity in our region, there are several things that we can do to be prepared in advance of a fire. These begin with advance preparation and evolve into an on-going dialogue and changed behaviors in terms of policies, procedures and routines. Here are a few important thoughts about preparedness:
One valuable resource is Ready for Wildfire www.readyforwildfire.org which includes planning tools, home and business hardening information, defensible space, evacuation preparation, toolkit list, etc. both in English and Spanish. This site also includes an ap for planning purposes for providing a defensible space checklist as home and business owners conduct their own walkaround. The ap also includes a statewide fire map linked directly to CAL FIRE along with current updates on fires. CAL FIRE’s website is www.fire.ca.gov and on the front page is a link to Wildfire Incidents. This is very current and is where many other websites get their information from. If local incident phone number is available, it would be published here as well. This should be a first step in a fire prevention and mitigation process.
Have a Plan.
This includes the development, refreshing or increased focus and emphasis on a Disaster Preparedness and Recovery Plan. Disaster planning focuses primarily on wildfire issues and will be a document that once completed, will be always subject to changes with modifications as the organization learns and embraces the plan. The plan will outline key personnel with their roles and responsibilities throughout the stages of a wildfire alert, potential evacuation warning, voluntary evacuation warning, mandatory evacuation warning, and post disaster recovery. The plan will address the separation, segregation and movement of stock and inventory to remove it from the path of a wildfire and secure it safely out of harm’s way. If you have the ability, segregate your stock / inventory into multiple locations. This will reduce the likelihood of a fire loss to all of your stock / inventory.
As wineries work to navigate the property insurance marketplace, communication with their insurance broker / risk management consultant is critical. The property insurance marketplace is ever changing and what was true last month may not necessarily be true today. Communication about the ever-changing marketplace is a crucial component to being aware of what an upcoming renewal might look like in terms of rate and limits being offered. The earlier in the process and the more often a winery can communicate with their insurance broker / risk management consultant, the less likelihood of a big surprise at renewal. It is no longer acceptable for an insurance broker to take a client to lunch and deliver renewal terms the day before renewal. In order to properly budget and be prepared for an insurance policy renewal communication early and often is necessary. By utilizing an insurance broker / risk management consultant that is familiar with the wine industry, the back and forth questions will be greatly reduced as there is familiarity with exactly what is required by the particular insurer(s) that are involved.
Know Your Limits.
This is not to know your boundaries and capabilities, rather to know what the true value of your winery assets are. A property policy will pay Replacement Cost in the event of a fire. The Replacement Cost of a winery’s brick and mortar assets for the building, tanks, furniture and fixtures are relatively easily established via a contractor, valuation models or other avenues. Stock / Inventory may not be so easily established. The Cost of Goods Sold to produce a bottle of wine is known. The cost to produce / purchase the juice is known. These are relatively easily established. Once a bottle of wine is ready for sale, the mark-up / profit margin must be established. Some insurance contracts will pay Selling Price on Stock / Inventory in the event of a fire loss or damage. Your property insurance limits of liability on your insurance policy must adequately reflect the values that, in the event of a fire loss or damage, you expect to receive. This is a critical step that must be documented before an insurance policy is in force. In essence the winery is “settling a fire loss with the insurance company before the fire occurs.” Through a well-documented Statement of Values, all parties have the full picture of what is at risk. Expectations of insurance policy limits of liability and anticipated pay-out must be set prior to the policy issuance, not afterwards. Also, check with your bank to see what your loan covenants require in terms of limits required to purchased.
The property insurance marketplace for wineries continues to change. For the balance of 2021 it is likely to continue to be an extremely hard marketplace with limited insurers willing to offer insurance to wineries. As new capacity begins to enter the marketplace for wineries, it is possible in 2022 to see some relive in terms of rate and availability of additional limits of insurance. Vigilance in the heightened awareness and thoughtfulness about a potential fire is important. A keen eye towards knowing what is happening in the local region and maintaining a safe and protected winery are critical.
For additional information please contact Chet Laws at InterWest Insurance. Chet and his team have an extensive background in the wine industry. He can be reached at firstname.lastname@example.org / 707-657-4505