By John Novaria, Managing Director, Amplify
When you think of winemaking, you picture grapes on the vine and a hearty glass of red on your table. But you probably don’t think of all the steps involved in the production of wine and the fact that those grapes – and later, the finished product – travel long distances to reach our palates.
That’s where marine insurance comes in: to protect businesses along the supply chain from the unexpected.
The American Institute of Marine Underwriters (AIMU) drew a robust crowd to its recent webinar, “From Vine to Wine and the Fire In Between,” where participants learned of the risks associated with wine production and the coverages that are designed to mitigate losses. The two-hour session is part of AIMU’s extensive and popular educational series, and drew a crowd of underwriters, claims experts and brokers from the ranks of marine insurers and beyond.
“One of the biggest roles we perform is education, and it’s not limited to our members,” says John Miklus, President of AIMU. “Marine touches so many aspects of business that there’s a real thirst for knowledge in the broader insurance community and we try to quench that thirst.”
Pamela Schultz, Jonathan Thames and Erik Kowalewsky of Hinshaw & Culbertson opened by discussing the effects of the 2017 wildfires on the Napa and Sonoma wine growers and wineries, where 10 percent of the harvest was still on the vine when the fires started.
There are nearly 20 steps involved in wine production, including include growing, harvesting, fermenting, storage, barreling, aging, blending, bottling, labeling and distributing. Each presents opportunities for things to go wrong.
Thames explained that Stock Throughput is a form of marine coverage that insures goods in all their physical states along the supply chain with the exception of damage caused by the processes of turning the raw materials into the finished products. He said policies are generally very broadly worded and cover all risks.
Schultz pointed out how marine insurance comes into play during shipment. Stock Throughput policies are designed to cover supply chains and anything that moves inventory against loss due to:
- Extreme weather and natural disasters can cause supply chain interruptions and even loss of product.
- Transportation: Obviously, wine has to get from the vineyard to the table and that table may be anywhere in the world.
- Trade problems/disruption: This affects imports and exports, especially delays due to current COVID-19 crisis.
- Lack of Control: Products are sometimes shipped long distances, and it’s difficult to know everything about every link of the supply or travel chain.
- Invaders: Yes, pests have been known to get into wine and cause damage and so can fumigation.
- CTL: Constructive Total Loss becomes an issue if the wine is stolen. Most policies exclude consumption of wine, but Schultz said that hasn’t stopped some insureds from trying to claim it on that basis.
The 2017 California wildfires brought into focus the issue of smoke taint. The smoke that lingers for weeks after the fires are extinguished can taint the grapes, rendering a wine unpalatable, or worse, undrinkable.
Thames noted that smoke taint claims don’t arise until after fermentation, after the wine has been tasted, and the grower must prove damage with scientific evidence and serve notice of potential loss within 60 days. However, he said there are cost effective processes winemakers can put in place beforehand to mitigate the effect.
The presenters discussed the difference between crop insurance and whole farm revenue protection, both of which offer only limited protection to the grower. Crop insurance is not a 100 percent indemnity product; it only covers the grapes pre-harvest, so there will always be a gap. Limits are based on past yields so it’s difficult to expand limits in the first few years.
As a result of the 2017 fires in Oregon, one winemaker now requires its growers to carry crop insurance and pays half the premium.
Whole farm revenue protection insures against lost revenue, but doesn’t protect particular crops as it is not a property policy. To make a claim on this policy the insured must establish that farm revenue is down as a result of the winery rejecting the grapes.
Participants were invited to vote on their favorite wine, and the overwhelming choice was Red, at 70 percent. White garnered 17 percent of the vote and Rose 12 percent.