Broker tackles insurance costs to wine industry post-quake

Broker tackles insurance costs to wine industry post-quake | Insurance Business

Broker tackles insurance costs to wine industry post-quake
One broker has pointed out the issues that confront the winery industry following the Kaikoura earthquake and what insurers writing policies for wineries should do about it.

Dan Szegota, senior broker at ICIB Insurance, said the November 14 earthquakes caused relatively minor bulk wine losses from tank and enough time for wineries to recover most of their processing capacity for the upcoming vintage.

The event brings into focus, however, bigger issues to the wider non wine industry losses in the Wellington region from an underwriting perspective, Rural News reported.

Current insured losses to the wine industry are placed at $200-$250 million. This figure excludes business interruption losses, as it is not yet known the impact of any inability to process Vintage 17 (V17).

Szegota said the Kaikoura quake cost insurers much more compared to the 2013 Sedorra earthquake due to its severity and wider scope.

“Another reason that the losses to insurers have increased is the recently reduced earthquake excess – typically reduced from 5% to 2.5% a few months pre-earthquake,” he explained. When this percentage is worked to a dollar value, this lower 2.5% excess still results in a high cost to the winery but also a higher claim cost to the insurer.”

The senior broker said there remains a lack of understanding around how the current site excess structure and how the actual dollar value excess is applied to a loss. It is up to brokers therefore to help wineries understand and calculate the residual risk that threaten their business post-quake.

Want the latest insurance industry news first? Sign up for our completely free newsletter service now.

Another issue that concerns the industry is the impact of processing availability for V17, Szegota said.

“Many wineries were quick to get tanks ordered and have a temporary solution up and running with insurers making progress payments to help minimise their loss, but also give the insured the ability to maintain markets next year – more formal repairs can then progress post vintage,” he said.

The rest had to use contract facilities, which limits their production capacity and increases costs due to the wines getting produced elsewhere. These costs can be picked up by insurance policies if cover was purchased and an insured loss took place.

“The insured losses for an inability to process V17 are also hard to quantify at this stage due to vintage size being an unknown and policy wordings that differ greatly in terms of how they trigger, and the basis of settlement,” said Szegota, adding that the costs will become more apparent in the coming months.

Many finished stock losses at contract warehouses, meanwhile, have already been settled and finalised as these were the easiest to quantify.

There has also been underinsurance issues, mainly due to a lack of knowledge of exact stock holdings at warehousing locations, where Szegota said wineries should pay more attention going forward to ensure they take out the appropriate cover at each location they process or store wine stock.

“I would expect the currently known size and nature of this event to impact on underwriting controls only, rather than those insurers that currently write wineries moving away from the industry. Pricing may increase slightly but the more likely scenario is a return to 5% site excesses,” Szegota stated.

Related stories:
NZ wine industry set for high claims surge