“The wine industry was the insurance industry's darling” | Insurance Business America Insurance News “The wine industry was the insurance industry's darling”
This is an area that has seen significant changes in recent years.
Insurance News
Chris Davis
The commercial insurance landscape for the wine industry has changed significantly over the past few years. Insurance for wineries used to be easily available, but climate change has caused costs to skyrocket, leading some establishments to buy less insurance or not at all.
Debra Costa (pictured), senior vice president at Heffernan Insurance Brokers, told IB she has seen many property companies choose not to buy insurance or to buy significantly less insurance, thereby assuming the risk themselves rather than passing it on to the insurance industry.
“The wine industry used to be the darling of insurance,” she told IB. “Ten years ago, everyone wanted to insure wineries. We got multiple inquiries from different insurance companies wanting to get into the industry and create programs for wineries. Today, it's a very different situation because of climate change and major changes in the insurance market.”
Catastrophic risks such as fires add complexity to underwriting the wine industry. In California, where Heffernan Insurance Brokers has extensive expertise, the cost of rebuilding winery buildings and the value of the wine itself make it a high-risk insurance sector that requires high insurance capacity that may exceed reinsurance agreements. In some cases, this requires going to the facultative reinsurance market and waiting in long lines to obtain unsustainably expensive terms.
“Insurance companies are pulling back because of climate change,” Costa added. “It's taking a lot of capacity out of them and it's happening because of the many losses that insurers are suffering in the U.S. and around the world.”
How technology is changing wine insurance
Costa highlighted the role of technology in this change, saying insurers are now using software, risk modeling and AI to determine the risk level of assets. This helps insurers decide how much capacity to deploy and whether to continue insuring policies in certain regions. The rising costs of insurance, consumables and labor are challenges wineries must overcome.
“We're seeing cost increases just like any other industry – increased insurance costs, increased material costs, increased labor costs – but the wine industry can't pass those costs on to wine, which is already expensive,” Costa explained. Especially with Gen Z and Gen Y consuming less wine than past generations, wine can remain a viable option for consumers. “So the industry is looking at its own business model and trying to figure out how to get through and remain a viable business.”
As the number and risk of wildfires increases, many insurance companies have been forced to reduce their policies. As a result, insurance today comes with many restrictions, especially when it comes to fire risk, making prevention key for wineries.
“We're not only working on insurance, we're working with real estate companies on risk mitigation and what they can do to mitigate risk for their own self-protection and resilience,” Costa said.
These efforts make wineries less risky to insurers and better position their clients to secure insurance in tough market conditions.
“We've come to understand that current premiums are not sustainable costs, they're exploding costs. We're in a tough insurance market and some of our customers are saying, 'Thank you for all you've done to give us different options, different deductibles, different levels of coverage, but this year we're saying, 'No,'” she said.
Wildfire challenges for wineries
Meanwhile, smoke damage from wildfires poses new challenges for wineries as it can affect grapes and ruin vintages, further complicating their insurance needs.
“There may not be any loss of buildings or property, but there will be smoke damage,” Costa added, stressing that brokers need to be knowledgeable about the wine industry and have a comprehensive understanding of the market.
“As a broker, it's important to know that not all wineries are the same. There's a lot of variation in the field, so I think it's important to really understand the business model and match that model with the products that are available to achieve the most protection possible for your client,” she said.
But despite the challenges, Costa remains optimistic that a solution can be found.
“There's still wiggle room out there,” she says, “it's just a matter of putting it all together and putting together the most protective insurance package based on the budget for your particular property.”
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