Even amateur oenologists are familiar with the reds of the Rioja region, the world-famous sherries of Jerez, and the sparkling Cava that is largely produced in Catalonia, as well as wines from emerging areas such as Bierzo, Ribeira Sacra or the Canary Islands and many other wines from emerging regions grown and bottled in Spain and Portugal. Wine production is big business, but there are many risk areas that can result in potential losses. Mariano Fisac, casualty claims team leader Iberia at AXA XL explains the role insurance plays in enabling the production of wine - from vine to barrel to bottle to glass.
Southern Europe is one of the most important wine-producing regions in the world. The European Union as a whole is home to 45% of the world’s vineyards in terms of area, and accounts for some 65% of worldwide wine production. While Italy is the largest wine producer in the world, it’s closely followed by Spain which produces about 39 million hectolitres per year and is consistently in the top three wine exporters globally. Spain also has the largest area of vineyards of any country at more than 1 million hectares.
Meanwhile, as well as being the 9th largest exporter of wine in the world, Portugal is the biggest producer of cork and accounts for more than half of all the cork produced globally.
The production of wine and the entire industry that surrounds it - bottling, labelling, cork and so on - is big business in Iberia. And, like any business, there are several major risks that can arise which may cause losses of stock or profits. It’s estimated that over the past ten years there have been more than 10,000 insurance claims related to the wine industry in Spain alone. Insurance and risk management can play a vital role in helping not only to reduce the size of potential losses faced when things go wrong but also to ensure the continued production of wine.
Contamination and impurities
One of the biggest risks facing wine production is contamination which may render the wine undrinkable for taste or health reasons. The two principal contaminants are TCA 2,4,6-trichloroanisole and other bacterias. Tartrates, however, aren’t contaminants per se but they – as well as other solid elements that can be found in wine, can be considered as undesirable impurities and subject to insurance.
TCA 2,4,6-trichloroanisole is a derivative of anisole and is the biggest cause of cork taint in wine. This powerful chemical compound gives wine a musty flavour and aroma. The contamination typically arises from a fungus found on corks, or sometimes other materials used in the production of wine.
The need to detect which bottles have been contaminated can be difficult and result in complex claims. Expert tasters must be used to identify those bottles that have been contaminated and once the affected wine has been located it is often rendered uneconomical to sell. An insurance policy can help vineyards to transfer some of this risk, and any losses could also be recoverable against the cork-supplier’s liability policy, which should include TCA contamination in its coverage.
Tartrates or other solid elements in wine are the residues that can arise from the natural wine-making process but are often unpalatable to consumers; this is why wine is typically filtered and/or decanted. If there is a flaw in the filtering or decanting process, these residues may appear in the wine.
These residues do not pose a risk to health, indeed, they are known as “wine diamonds’ by experts who love to find them in their glasses. But the general public typically is not so keen. To protect themselves against claims arising from residues, wine producers should ensure that they are expressly indicated in their insurance coverage. It is also possible to recover damages from the filtering and decanting process if, again, this is expressly included in the liability policy.
Corks, bottles and labels
There is a lot more that goes into bringing a bottle of wine to a bar or dining table than just the production of the wine. And insurance coverage can play a vital role in enabling this.
Coverage can be bought to protect against losses arising from defective corks that are difficult to extract, or which may break on extraction, contaminating the wine. It’s also important that wine producers manage and transfer the risks associated with spillage and the breakage of tanks, barrels or bottles.
It is also relevant, particularly for premium wine producers, that they have good insight into the different batches - or ‘cuvées’ - of their wines to help value wine before it is bottled; this helps to evaluate the magnitude of any losses of wine before it’s bottled, since some wines can command a higher price than others. In other words, a winery's processes must adequately trace the products in order to be able to prove, for instance, that a damaged tank contained wine that was destined for a higher-value wine reserve due to its quality, in order to ensure it is compensated accordingly.
We encourage wine producers to agree valuation clauses or calculation methods at the outset of any insurance policy, to make it easier to assess the insured loss of profit and sales if wine is lost before reaching the shelves.
Damage to vines is another major area of risk for wine producers and one in which insurance can play a significant role. The climate changes experienced in recent years have had dramatic consequences in many vineyards around the world. In fact, I always say that anyone who still doesn't believe in climate change should ask one or two winegrowers. Insurance coverage can help protect vineyards against the loss of or damage to vines caused by incidents such as fire, wind, draught as well as damaged caused by lightning, explosions, vehicles or wild animals.
Valuation of these claims is based not only upon the cost of any plants that are replanted, but also the loss of subsequent harvests, since vines do not enter regular production until they are five years old.
At AXA, we have a wide range of potential solutions that can help vineyards to transfer some of these risks, including parametric solutions that can offer swift payouts based upon climatic triggers.
There are other areas where insurance can play a role too, for example offering coverage to producers of wine labels that may, for various reasons, contain incorrect information, have adhesive problems, or suffer printing errors. Last but not least, insurers also can offer coverage for machinery failure in the production process.
A specialist business like the production of wine naturally involves a great deal of expertise. Risk management and insurance coverage can help enable experts to continue to produce the rich variety of wines found in the Iberia region and to support the industry that ensures wine gets from the vineyards of the region to the consumer’s glass.
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US- and Canada-Issued Insurance Policies
In the US, the AXA XL insurance companies are: Catlin Insurance Company, Inc., Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Specialty Insurance Company and T.H.E. Insurance Company. In Canada, coverages are underwritten by XL Specialty Insurance Company - Canadian Branch and AXA Insurance Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
US domiciled insurance policies can be written by the following AXA XL surplus lines insurers: XL Catlin Insurance Company UK Limited, Syndicates managed by Catlin Underwriting Agencies Limited and Indian Harbor Insurance Company. Enquires from US residents should be directed to a local insurance agent or broker permitted to write business in the relevant state.