Due to its uniqueness, the wine industry is far from straightforward from an insurance perspective.
Garry Mooney is Managing Director of ICIB and has more than 30 years of experience insuring the wine industry. He and Senior Broker Daniel Szegota sat down with me and outlined what forms of insurance are available and why industry members should consider them.
But first – why is this industry different to all others?
"Wineries are a very high value product, usually within a concentrated space and with a large number of risk factors," Mooney says. "There are so many different components. You are growing (a product), converting it to another product and distributing it worldwide. So it's the whole package, which makes insurance so interesting and complex."
Let's start at the very beginning – with the fruit. According to Mooney, this is probably the largest uninsured (and to a large extent uninsurable) risk in New Zealand.
"The grapes themselves become a case of self insurance as you can't get frost cover in a frost prone area. Therefore you need to have good risk management through fans, alarms or even bringing in helicopters. You can't get cover for disease or against insects and pests which rules out cover in the event of a bio security incursion."
Even insurance for the vines themselves is difficult to arrange, costly and with a basis of settlement far from ideal.
"We often get asked about it," Szegota says. "...but in reality the cover available is actually for the ancillary equipment such as poles, trellising and irrigation/vineyard equipment and restricted to limited perils such as fire, impact, and natural disaster. But if there was a fire through a vineyard, or earthquake damage, there is typically no insurance on the vines themselves under a standard material damage policy."
Growers should though consider insuring their fruit once it leaves their property under a transit policy, and their juice if they are having it made in a contract facility themselves, rather than selling the fruit.
"One of the most common things we hear is the idea that the contract facility will be insuring the wine on behalf of the client" Szegota says. "But they aren't. Under a standard winemaking contract the contract winemaking facility will only insure their legal liability from negligent acts and then you can only receive the actual value of wine, not your selling price. Anything that is not the contract winemaker's fault such as malicious damage, fire, earthquake or storm, the owner of the wine must insure it if they require cover."
Winery Insurance
It's probably not surprising that the risk with the highest potential loss to a winery in New Zealand is damage caused by an earthquake. All of the major winegrowing regions are in seismic areas. In 2007 Gisborne's industry was affected and in 2013 Marlborough's wine industry suffered $100 million in damage relating to the Seddon earthquakes. And it could have been worse, given the quake was centered some distance away from the majority of the region's wine infrastructure.
Mooney says the entire New Zealand wine industry is vulnerable if a major quake was to hit Marlborough.
"At least 60 percent of New Zealand's wine production is centered within one small area – Riverlands and Cloudy Bay Industrial Park. If you list all of the major wine companies in this area, built on soft soil, reclaimed land and add in the contract winemaking facilities with multiple clients, the bottling plants and the logistics companies, it's a very high concentration of risk."
Regardless of how much insurance cover a company had, if that area suffered a major loss there would be no recovering for some time, which has ramifications for the industry as a whole as there is no capacity in New Zealand that could process a Marlborough vintage.
The majority of the $100 million worth of damage caused by the Seddon quakes was not related to winery buildings or stock, it was to tanks and catwalks, which Mooney says have in the past been built "too thin based on cost".
He would like to see the industry bring in standards that would help prevent such damage occurring again.
"The wine industry has no earthquake standards. There is nothing that says tanks and cat walks have to be to a certain standard, other than meet the health and safety requirements. Building standards ensure the winery will be able to withstand an earthquake – but catwalks and tanks are too often overlooked."
Since the earthquake, engineers and tank manufacturers are constructing tanks and catwalks to a higher seismic standard - "...but it needs to be a joint approach, not individual regions working autonomously."
If the industry doesn't drive this forward there is a strong chance the insurers will – which will be to the detriment of those looking to purchase insurance.
In terms of other areas wineries should be looking to insure, he says world-wide contamination and recall is vital. Perhaps a worst case scenario is glass fragments in wine discovered in a market such as the US, UK or Australia. You as a company would be responsible for the costs associated with the recall, even if a contract facility has produced the wine.
"This type of policy has the lowest uptake," Szegota says, "versus the potential exposure. There's the physical cost of getting it off the shelf, dumping costs or additional storage costs. Then managing the media becomes a priority because one of the major issues is brand damage and insurers utilise specialist consultants who manage the media on behalf of the winery in overseas markets as well as New Zealand.
"And you have to realise that a recall doesn't only affect that particular batch, it will affect the brand as a whole. A supermarket may take a number of your wines, but even if only one is affected they will remove the entire brand range and until you can show the issue is fully resolved they won't be allowed back on the shelf for a period of time, determined by the store owner. This ultimately may lead to a loss of shelf space going forward."
The Business Interruption or profits component of insurance is another area Mooney says should be considered and is commonly underinsured. Particularly for those that produce and age wines that won't be sold for a number of years.
"For those producing wines that they have aged for a number of years they need to imagine what would happen if they lost that stock overnight. It could be years before they could reproduce a similar product. So business interruption insurance becomes important as settlement needs to factor in, or be enough to, cover the timescale the wine will be sold in."
Can you insure yourself against an overseas customer who decides for whatever reason he is not going to pay for his shipment of wine?
Yes, under a Trade Credit policy and Mooney says it is important to have this cover. Many people make the mistake of thinking because a customer has been reliable for years, they will continue to be so. But if something were to go wrong and your wine didn't arrive, or it was damaged in some way, or the company went bust after you had sent the shipment – it is you who will be out of pocket.
"In some cases wine being sold FOB hasn't been paid for. So if something happens and the wine doesn't turn up to the buyer and they haven't got insurance – well they haven't got the wine, so why are they going to pay you for it? You need cover for that eventuality."
Insurance is not an easy subject to condense down into one article. Needless to say you should be talking with your insurance broker on a regular basis. Work out where your greatest risk lies – how can you prepare for that? Look at the options and as with any other product don't be fooled by price.
And remember, as Mooney says this is a unique industry.
"Wine has everything. It has grape damage and transit risk. It has processing risks, spillage, leakage, contamination, bottling risk, warehouse risk, export and overseas risk. Not all insurers will insure wineries on the correct basis which is an indication of their appetite based on those risk factors specific to the wine industry."
