Connoisseur Concerns in Wine Country
Wildfires are leading to limited capacity, higher pricing, and an unknown future.
This summer wildfires raged across the United States, Canada, Turkey and Greece. In the United States alone, the past decade saw almost 63,000 wildfires annually with an average of 7.5 million acres impacted, according to the Congressional Research Service.
Last year, about 59,000 wildfires burned 10.1 million acres—the second largest amount of land impacted in a single year since 1960. Nearly 40% of acres burned were in California. To make matters worse, the Golden State is in the middle of a severe drought with the National Integrated Drought Information System warning that all of California is under abnormally dry conditions, increasing the likelihood of additional damage. All combined, these conditions have contributed to skyrocketing premiums and deductibles for California’s wine country.
The premiums for property insurance which protect against wildfires have been increasing at a rapid pace. Schramsberg Vineyards in Calistoga, California, is one example. The vineyard saw its premiums go from $200,000 to $800,000 with its deductible skyrocketing from $25,000 to $500,000, according to Robber Report.
“The property market is still trying to wrap their arms around how to manage the ever-growing risk that vineyards and other wildfire-exposed locations are facing,” Jason McCarrick, vice president of NFP’s real estate practice said. “Insurance companies have largely been unsuccessful when attempting to subrogate against the responsible party for these enormous losses, and yet they are the ones bearing the brunt of them. While the insurance industry still tries to figure out how to insure things, generally speaking, the underwriting response to something they can’t wrap their arms around is to avoid it or increase pricing.”
The property market is still trying to wrap their arms around how to manage the ever-growing risk that vineyards and other wildfire-exposed locations are facing.
Jason McCarrick, vice president, real estate practice, NFP
High prices and a lack of access to property coverages that protect against wildfires have forced many wineries to operate despite being uninsured against this risk. Some vineyard operators have looked to find coverage in the form of a public option called Fair Access to Insurance Requirements (FAIR). Critics however claim the plan is too limited. “The FAIR plan is stopgap coverage. It’s very limited not only in what it provides coverage for, it has a max of $3 million for buildings,” David Capponi, partner with Malloy Imrie & Vasconi Insurance, told news publication Napa Valley Register.
With higher risks of wildfires and higher coverage rates threatening wineries and other businesses, the question of uninsurability is on the minds of some, says McCarrick. “I don’t think anything is truly uninsurable, but it’s more a matter of whether or not the premium is worth it,” he said. “The property market itself is hardening. It’s not a traditional hard market, either. Capacity is available. It’s just expensive. However, that doesn’t apply to Texas wind and hail and California wildfire. Those markets are hardened because there’s a limited amount of capacity and pricing considerations have skyrocketed.”
Although the property insurance market for wineries continues to harden, consumers have yet to pay the difference in cost. According to WineBusiness.com the average prices for red and white wines were both down in 2020 compared to 2019. Time will tell if wildfires increase the price of wine as more vineyards struggle to secure adequate and affordable coverage.
