Wildfires have been regularly ravaging California since 2017, including the countryside that hundreds of wineries call home. It’s putting livelihoods, businesses, and an entire industry at risk. For a more detailed look and some personal perspectives, read this New York Times article on the subject, for which I provided background information. The devastation is ongoing, the impact of these fires will be felt in the region for years, including on the insurance front. Hit with significant losses from claims, many insurers who once provided coverage for California wineries have exited the space, deeming the locations uninsurable. In 2020 alone, 4.3M acres burned within the state, including five of the six largest wildfires in state history, resulting in projected losses of $7B - $13B.
Location, Location, Location
It is important to note that wineries affected by the fires are still able to obtain certain types of insurance not related to their property: general & liquor liability, business auto, and umbrella coverage. However, for some, property insurance has become increasingly difficult to secure.
Underwriters and reinsurers, seeing the recent, seemingly unrelenting trends, are concerned that providing property insurance to wineries located in potential high wildfire areas are at higher risk of fire damage that will lead to huge claims. Underwriters are not taking these high-risk chances anymore as these locations are unsuitable for the standard marketplace.
Before considering property coverage, insurers will map a location and conduct a risk assessment that factors in slope, proximity to brush, nearby fuel, historical wildfire activity, etc. If they determine the risk score is higher than a maximum level allowed, standard carriers will not consider offering coverage. This is far stricter than a few years ago, and as the wildfire trend spreads, more locations will see their risk score increase.
At least half a dozen insurers that got hit hard by wildfire-related claims exited the space in recent years, leaving only a few carriers actively providing coverage to wineries in the state. These carriers walk in lockstep, setting similar standards and denying coverage to the same wineries for the same reasons, with very few exceptions.
If and when wildfires become less of a hazard, underwriters will tally the premium dollars they are leaving on the table by staying out of the winery space and possibly consider ways to get back in the market, but only time will tell when that will happen. In the meantime, premiums for property insurance, if it can be obtained, have risen significantly for most California wineries while hundreds of others have received non-renewal notices.
Limited Options Remain
There is no silver bullet or clear solution for the wineries left without fire insurance, but there are some possible coverage options available:
FAIR Plan: The California FAIR plan is a shared risk pool established to provide basic fire insurance coverage for high-risk properties that standard carriers will not underwrite. For many winery businesses, this last resort form of coverage will not be enough because the plan only covers up to $3M for buildings and $1.5M for contents per location;
Fire Mitigation Techniques: There are steps winery owners can take to protect their respective properties and minimize damage in the event of a fire. We recommend that high-risk wineries explore and execute all applicable techniques, while recognizing that for some business owners, the investment of clearing brush on their own property is costly.
Federal Crop Insurance: The USDA provides crop insurance to those whose grapes are unusable due to smoke taint. They will reimburse vineyard owners for the tainted grapes based on loss of yield. However, if a vineyard is destroyed by a fire, crop insurance does not cover the cost to replant the vineyard.
The Glass Fire of one year ago is estimated to result in $2.3B damage in the Napa-Sonoma corridor. 20 wineries were completely destroyed by this wildfire, but at the time, all had insurance and were able to recover and stay in business, for now. After the destruction, they, along with others in the region, faced non-renewals of their insurance policies. Wineries not destroyed by fires last year but close enough to the devastation to be deemed uninsurable in 2021 may not be able to survive if a wildfire strikes in the same area again. Without insurance, recovery and rebuilding efforts will have to be paid out of the wineries’ pockets, the cost of which could put most wineries out of business. The situation is serious and is trending worse as the impact of drought continues.
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The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.