The drought conditions in California have significantly increased the risk of wildfires across the state, and for vineyards in the path of these fires, the stakes are even higher.
In August and September of this year, several fires threatened the livelihood of this $114 billion industry.
A fire near Vandenburg Air Force Base in Lompac covered more than 12,000 acres, the largest fire in the base's history. Meanwhile, the Soberanes Fire, which burned for nearly three months along California's scenic Central Coast, could became the most expensive fire in terms of firefighting with costs exceeding $235 million, according to an article in the San Francisco Chronicle.
The Soberanes Fire and wildfires in 2015 threatened the American wine-producing regions in Northern California, which generates more than $57.6 billion in economic activity according to the Wine Institute. At the beginning of the harvest season, vineyards burned and grapes languished on the vines because of evacuation orders. A major concern for winemakers was the threat that their wine could be tainted by smoke.
Because of the size, diversity and value of wineries and vineyards, these businesses face complex risk management and claims-settling challenges. Wildfire claims for wineries, though infrequent, are catastrophic. That's why mitigating the risks of wildfire claims and reducing claims severity begins with the local insurance agent or broker and persists long after the fire has been contained.
How can the winery's insurance and claims team effectively manage the lifecycle of winery wildfire claims? Here are five things to know about wildfires and wineries:
Like tornadoes that strike at random, wildfires can burn some areas and skip others, leaving only smoke damage behind. (Photo: iStock)
1. Understand the realities of wildfires
After every new fire we hear, “We’ve never seen anything like it” or “I’ve never seen fire behavior like this before.”
California wildfires seem to be growing in intensity and size. Reacting to fire behavior is difficult enough because it inflicts damage similar to tornadoes. One building may be totaled, and the building next door may be untouched.
These fires move at incredible speeds, and risk mitigation tactics cannot always help if a property lies directly in the path. Firefighters and officials are focused first on saving lives, not property. Large property losses are the reality with wildfire claims, and claims professionals should be prepared for that reality.
Property owners can landscape their acreage and homes so they are less vulnerable to wildfires. These defensible spaces include low shrubs, no trees hanging over structures and removing any dried brush or vegetation. (Photo: iStock)
2. Mitigate the risk of fires
The massive scale of these fires makes the headlines, but it is the tiny embers that ignite and spread them. If they haven't already, wineries exposed to wildfires should adopt a few crucial risk management practices:
Secure structural vulnerabilities. Small gaps and openings leave large structures vulnerable to infiltration by embers. Cover attic vents with a 1/8-inch (maximum) wire mesh to keep out embers or firebrands. Ensure garage or barn doors close completely and seal gaps with weather stripping. If a pergola, fence or other structure is attached to a primary structure, install a metal flashing strip about 18 inches tall where it attaches to the main building.
Create a low- or non-combustible zone. Prune trees and shrubs a minimum of 5 feet away from roofs, eaves, windows, siding and attachments. Clear away dead and dying vegetation on an ongoing basis. Install hard surfaces such as stone or gravel around the perimeter of structures to create a fuel break.
Create a defensible space. Brush and vegetation provide a fuel source to carry fire within the boundaries of a property. Ensure there is a minimum of 30 feet of defensible space around structures by reducing the continuity of vegetative fuels. That means mowing grasses and clearing shrubs, as well as isolating trees or separating them into small groups to break canopy continuity. Trees should be trimmed to a minimum of 10 feet above the ground. Clear all dead and downed debris to eliminate ladder fuels. Replace landscaping plants with native, low-growing, fire-resistant varieties.
If agents take the time to help address the insured's fire vulnerabilities, they may reduce a winery's claims severity.
Wineries are complex businesses and much like small cities. Capturing a thorough inventory includes all equipment, supplies and infrastructure. (Photo: iStock)
3. Take accurate inventories
Wineries and vineyards in California can sprawl over 1,000 acres and include a diverse array of risks to insure, from tasting rooms and barrels of aging wine to grape vines and irrigation systems.
Insureds often approach insurance policies from the perspective that only one risk will need coverage at a time. But a wildfire can destroy an entire property and its infrastructure. When a wildfire rolls over the hill, not only do structures burn, but pieces of infrastructure melt, such as pumps and electrical connections that may be sitting out in the middle of a field.
That makes it critically important for agents to take accurate and thorough inventories when initially preparing a policy for a winery, and for adjusters to do the same while investigating a wildfire claim. Working with the insured, agents need to inventory the property and determine exactly what is being insured. The insured should not have any surprises when it comes time to file a claim. If coverage is not available for a critical structure, the insured will likely be dissatisfied with the agent, the claims adjuster and the insurance company.
A thorough understanding of all the aspects of the business and property can help ensure that nothing is overlooked as part of the claim. (Photo: iStock)
4. Work collaboratively with insureds on site
Agents and specialty insurers do their best to help insured wineries mitigate the risks of a wildfire.
Unfortunately, when embers are blowing into the property, it is time to begin considering the claims process. When handling these claims, adjusters and agents must collaborate with the insured on mitigation, documentation and presentation.
Insurance professionals must lead with empathy during these types of disasters. Typically, the insureds have never seen a claim of this size, and they may have lost their home as well as their business. They are looking to the insurance adjuster to take the lead and define the collaboration needed to move forward.
These large California vineyards are like cities unto themselves, with incredible amounts of infrastructure from irrigation systems to potable water supplies to wastewater treatment facilities. The insureds will need help prioritizing what is most important to them regarding policy and business issues.
Once you have dealt with pressing needs and built trust, the adjuster needs to immediately let the insureds know what is and is not covered. The insureds’ perspective is always that everything is covered, but the adjuster needs to manage that expectation and give them the information they need to decide how to allocate resources. Extend advances and let them know you and the agent are there to help support them.
As with any claim, communication with the policyholder is critical to building long-term trust. (Photo: iStock)
5. Communicate throughout the process
Communication during the lifecycle of the wildfire claim is critical, and agents play a crucial role here. They know the policy and the insured likely trusts them. It's the adjuster's job to maintain this circle of communication after the initial on-site triage and assessment — this vineyard is more than just another file. In the aftermath of the claims, maintain weekly and then monthly communications.
Agents and adjusters are trying to manage any claim for an outcome that is acceptable to all involved, while proving the value of the agent and insurer and keeping the promises made to the insured. With empathetic, thorough risk management support and claims handling, everyone benefits and the insured has the best possible outcome for this disaster.
Larry Chasin is president of Cedar Knolls, New Jersey-based Pak Programs, a provider of insurance for wineries and vineyards, breweries, wine and liquor retailers, cideries, distilleries, and liquor and wine importers and distributors. Email him at firstname.lastname@example.org.