The state of the Property insurance market for wineries is experiencing some severe difficulties and there is no relief in sight for the foreseeable future. We are experiencing what the insurance industry calls a Hard Insurance Market. It is hard to get to coverage and hard to tolerate the coverage reductions, lack of available insurance limits and increased prices.
“For the larger wineries, it is extremely difficult to purchase enough limits of insurance to adequately cover all of the exposures to loss of buildings, machinery and equipment, inventory and business income in the event of a loss.”
How did we get here and why is this happening? It started in California with the 2017 fires followed by the 2018 floods and then the 2019 fires. Insurers took substantial fire losses in 2017, an extremely large flood loss in Northern California and bourbon plant fire in Kentucky in 2018 followed by large fire losses in 2019. These compounded losses caused several insurers to withdraw their interest in the wine industry altogether while others have dramatically reduced the coverage offerings available while substantially increasing rates / prices.
A winery was previously able to be able to purchase an extremely broad Property coverage through what is called a Stock Throughput policy which was offered by Lloyd’s of London syndicates. This form has been dramatically modified to reduce the insurance coverage offered. A Lloyd’s syndicate is still looking to offer Property insurance, however primarily to the largest of the large wineries. There have recently been new insurer entrants into the marketplace, while their true interest in offering terms is yet to be fully determined.
For the larger wineries, it is extremely difficult to purchase enough limits of insurance to adequately cover all of the exposures to loss of buildings, machinery and equipment, inventory and business income in the event of a loss. Previous to 2018-2019, limits of liability of 100’s of millions of dollars were readily available. Today, it is a laborious process to layer enough limits in order to build an adequate insurance program to cover the full exposure to loss or damage. Oftentimes loss limits or stop loss limits of insurance protection are purchased to cover the largest foreseeable loss at a single location. Increased property deductibles are also being required in order to obtain coverage. However, the fires have shown us that there is no easy way to determine what could possibly be lost, damaged or destroyed so insuring to 100% replacement value is a good practice to employ. Building replacement costs have gone up dramatically and a true assessment of the true current replacement cost is essential.
What can you do? Work with your finance team, CPA, banker and insurance broker to determine accurate values to substantiate the limits of liability you are desiring to purchase. Know the true replacement value of your buildings, machinery and equipment. Insurers are oftentimes asking for limits equal to 100% of replacement cost, in lieu of previously allowed lower limits of insurance. Have a firm understanding of your stock valuation for inventory in all phases of production, from fruit just picked to and through the entire process of bottling and warehousing finished inventory. In advance of approaching the insurance marketplace, have all of your information professionally and concisely documented.
There is currently no relief in sight for property insurance in the wine industry. What used to be a relatively easy process for an insurance brokerage to approach the insurer marketplace now is a process that requires oftentimes several months. By working 120 or more days in advance of a property insurance renewal, unexpected requests by the insurers and delays in getting physical inspections and additional details of insured locations may be avoided. It is important to work with a team of individuals and firms that understand the wine industry and have strong relationships within the insurer marketplace. Patience and frequent communication are key to a successful property insurance placement.
What is next? If your current insurance brokerage is currently working with wineries, you may be in good shape as they should be familiar with the scenarios above. If they do not, ask your other professional relationships such as CPA or banker who they would recommend that work in the wine space. Reach out to your friends and colleagues at other wineries your size and ask how their renewal process is going/went and who they are using. Local “business journal” type of publications have lists of property and casualty insurance brokers in the wine space. Protea Financial team also have insurance brokerage relationships they will introduce you to or contact Chet Laws of InterWest Insurance at firstname.lastname@example.org / 707-657-4505.
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