Forecasting what 2024 will bring for wine, brewing & spirits industries
Weather-related risks challenged wineries throughout 2023. Will 2024 hold more of the same?
In 2023, the hard market, supply chain shortages and inflation continued to serve as hindrances to our policyholders wine and alcoholic beverage space. Challenges both new and old offered up a variety of risk exposures for agents and brokers to bring to the attention of their winery clients.
Wildfires, heavy rainfall, convective storms, riots and civil commotion, capacity challenges and increasingly unfriendly jury verdicts placed significant pressure on insurers in the winery space. While these risks and economic concerns made for a difficult year, they also present a critical opportunity for growth for the knowledgeable agent and broker who is engaging clients on the state of the market in 2024, as well as the carriers and program managers involved in the process.
Weathering the storm
Weather-related risks challenged wineries throughout 2023. As has been the case in recent years, wildfires ravaged several regions. While California benefitted from above average rain and snow heading into fire season and relatively cool temperatures, other regions were not as fortunate. Canada experienced the worst wildfire season ever recorded, with 45.7 million acres of land burned. Wildfires in Chile affected an estimated 600 small wine producers, with losses approximated at around 470 hectares of vines. In Hawaii, insured losses from the wildfire that destroyed the town of Lahaina are currently estimated at more than $3 billion.
During the third quarter, insured losses from severe convective storms (SCS) exceeded the $50 billion mark for the first time ever. These losses accounted for roughly 60% of all global insured losses, according to Aon’s Q3 Global Catastrophe Recap report. In the U.S. in particular, we saw at least four individual billion dollar insured loss events caused by SCS, and we expect this to increase to seven events due to continued loss development.
Similarly, European vineyards were heavily impacted by the weather. In Central and Southern Italy, heavy rainfall helped mold spread throughout vineyards. On the opposite end of the spectrum, severe drought and soaring temperatures blighted vineyards in Spain.
Across the board, weather incidents have created a challenging claims landscape. From 2013- 2017, the average annual CAT loss was $70 billion. In 2021, we reached $120 billion, the second highest annual total ever. This year, just as of September, we had already reached $133 billion.
Other claim trends
We have also seen rising claims in other sectors. Riots and civil commotion have been an unwelcome occurrence. We have seen destruction of property across the country. Thefts are on the rise as well, in particular smash and grabs. These events have led to significant losses as the offenders seem to have little fear of prosecution. And we often see multiple occurrences at a time.
Auto incidents continue rising in frequency and severity. On the property side, we are still seeing a strong upward trend in claims with much higher replacement costs compared to a few years ago. Construction material costs have eased but higher wages and financing costs are keeping construction costs elevated.
Insurers are having trouble navigating jury verdicts when it comes to resolving these claims. “Thermonuclear” verdicts, verdicts far exceeding the $10 million threshold, have become more of an issue this year. On top of that, third-party litigation funding has become a multi-billion-dollar global industry, turning lawsuits into investments.
These challenges combined have created a capacity problem in insurance. Aggregate exposures and extreme concentration of risk far exceed available insurance capacity. Reinsurers are pulling their capacity back from property catastrophe risks as well. Those that have remained have raised rates while shifting more risk back to primary insurers in the form of higher coverage thresholds. In the past, soft reinsurance pricing and favorable terms allowed many insurers to escape significant net losses from CAT events. Now, this protection is much more limited, and many carriers must reexamine their risk tolerance and current exposures.
A brighter outlook
While the insurance industry continues to navigate a tumultuous market, there are lessons we can learn and share with clients that could soften the financial burden in the year to come. Agents and brokers should work with clients to:
- Enforce better safety standards: It has become clear that policyholders that are best in class with written, enforced policies and protocols are better defendants. Work with clients to develop comprehensive safety standards across the board.
- Recommend technology: On the auto side, we have seen telematics and vehicle cameras work wonders in reducing loss frequency, and they provide significant return on investment. All insureds with commercial fleets should be implementing this technology.
- Prepare ahead of time: With such frequent weather losses and challenges, agents and brokers should work with their clients to prepare them well in advance of any disasters. Ensure they are taking steps such as developing an emergency response plan, getting their roofs inspected and making sure vegetation is cut to an acceptable level. Agents and brokers should also be conducting regular on-site visits to confirm clients have the right insurance limits and coverage.
These steps will help agents and brokers deepen relationships with their clients and keep their risk profile in check. But there is more we can do. This starts with maintaining a visible presence, what we call a boots-on-the-ground approach to our clients. Agents, brokers, program managers and carriers can build credibility by doing what we say and saying what we do. In the immediate aftermath of any storm, being on site supporting the recovery of our clients goes a long way, and in helping in the rebuilding process.
Working with a specialty insurer will also harness the power of a more experienced casualty claims team, particularly those with professional legal experience. These individuals can be incredibly valuable as we look to understand the characteristics of high exposures and cost cases. With their expertise, we can identify these cases early and develop better strategic case management plans that will help limit losses in court.
As an industry, we know how to handle a difficult market and we will effectively adjust. We know challenges create opportunities. With more agent-policyholder communication, combined with a boots-on-the-ground approach from all parties involved in the insurance process, we can move into 2024 ready to tackle what’s next.
Larry Chasin is president and CEO of PAK Programs, which provides insurance programs for wineries, vineyards, breweries, wine & liquor retailers, cideries, meaderies, distilleries, liquor & wine importers and distributors. He can be reached at larryc@pakprograms.com.
Opinions expressed here are the author’s own.
Related: