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A Technical Guide for Wine Producers
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Short term insurance:
Protect your business against risks
The primary function of insurance is to serve as a risk displacement vehicle where the losses of few are paid out of the premiums of many. This displacement does not prevent a loss from occurring, but it does provide financial security and to a large extent peace of mind.
It assists individuals and businesses with their cash flow and the cost of coverage (and loss) is known. Risks can only be insured if the cause of the loss is accidental and if there is an insurable interest, i.e. there must be a legally acknowledged financial interest by the individual or business before goods can be insured. The main purpose of insurance is compensation, to place the insured in the same position in which he/she was before the loss occurred.
Commercial insurance
Under this portfolio of coverage the focus is on business risks, from the sole owner who works from a garage to a large corporation. The risks could possibly be more or less the same, but the cause of the risk, as well as the extent and type of losses suffered, might well differ drastically. It happens daily that businesses discover, after a loss, that the risk areas relevant to their business are not insured or completely underinsured. Except for the trauma that accompanies loss, inadequate insurance at the time of such an occurrence could mean huge financial loss to the business, which might have been prevented by the correct protection against such risks. With this in mind we take a look at the following standard risk areas:
All buildings and content belonging to a business or for which it assumes responsibility, are covered under this section against fire, lightning and explosion. Dangers such as earthquakes, storm damage, leakages, earth moving and malicious damage are not automatically included and must be so indicated on the policy schedule. Normally items under this section are covered for replacement value, but wine stocks for example can be insured for a pre-determined sales value, provided an agreement is reached with the insurer. The same applies to stocks of other parties that are stored on their behalf on the wine cellar premises in question. Goods in the open, in other words goods that are not normally stored or kept in buildings, must be indicated as such on your policy. In the case of additions or extensions to buildings, the insurer must be notified in advance and it is advisable rather to take out specialist coverage for these types of risks with a specialist insurer.
Coverage is the same as above, except that coverage for earthquakes, storm damage, accidental damage to sanitary ware, theft with forced and violent entry and general liability to R1 million is included.
Where a separate office or office complex is used, the contents of such premises are covered against standard risks. Damage to documents is included and theft coverage is available as an option. Make sure that rented office equipment is also included in the insured value under this section. Electronic equipment should be insured more specifically, however.
More generally known as loss of profit coverage. This section covers the business against loss of gross profit occurring due to an event or damage to property that had been insured under the fire section. This insured value is calculated according to the previous year's gross profit and linked to the period of time it would take the business from the date of loss to become fully operational again. In Australia it was recently proved that it takes approximately 18 months for an average wine cellar to get back to full production after a serious loss. The period of coverage will depend on factors such as the type and availability of machinery and/or builders.
Covers loss or damage to the business' books or records and the cost involved in recovering data after an event.
If forcefully and violently broken into insured premises and the contents of the premises stolen or damaged. Coverage under this section is normally subject to certain safety requirements. It is important that the extension for malicious damage appears under the fire section of the policy. Coverage is usually on a first loss basis, in other words the damage that can occur at any given moment.
Covers all cash and negotiable securities at the premises as well as in transit, for an agreed amount. The special conditions regarding money in transit are vitally important and may differ from one insurer to the next.
Unlike household policies, damage to glass is not automatically included in buildings for commercial purposes, but have to be insured additionally and for the full value of all glass, otherwise the average is applied.
Provides coverages for theft or fraud by employees.
This section covers all items that belong to a business and where the transit of such items falls under its control and items are transported to or from any place. Wine that is transported between cellars by a contractor, for example, or is in transit with the intention of being exported, is not covered under this section. For this purpose coverage must be taken out with a specialist insurer.
All high risk items that are normally carried about for purposes of the business (such as cellphones), must be specified under this section. The coverage is worldwide.
Covers any accidental, physical loss or damage to insured property that cannot be insured otherwise. Note the special exceptions or conditions that apply particularly to the policies of wine cellars and related businesses.
Indemnifies the business against claims for accidental death or injuries, losses or damage to tangible property caused by or arising from the business' activities. The products liability extension is of critical importance to all businesses manufacturing, supplying, selling and importing or exporting products. Insured parties are inclined to disregard the impact of exchange rate on the covered amount. Coverage for USA/ Canada and the EEC countries is usually excluded and must be taken out with specialist insurers.
If the business can be held legally accountable for the death of or bodily harm to any employee or for damage to the property of employees.
Coverage for bodily injury or death caused in an accidental, violent, external and visible manner to any partner, director or employee of the business. Stated benefits coverage is expressed as a percentage of earnings instead of a fixed amount as with Group Personal Accident. In the case of a claim the business and not the particular individual is paid out as the insured party.
Under this section there are three coverage options - comprehensive, 3rd party, fire and theft and 3rd party only. Liability towards passengers is a standard inclusion, but an extension for passengers on an open vehicle is available as an option. It is important that rented vehicles, especially forklifts, also be insured under this section, unless otherwise stipulated in the rental contract.
Provides coverage for physical loss or damage to such equipment, for example lightning damage to computer equipment. Items are also covered in transit.
These are usually not covered by a standard commercial policy and are often only available from specialist insurers. Don't hesitate to ask your broker for more particulars about such insurers. The following risks are especially likely in wine cellars and on estates:
Examples are thatched roofs and wooden or prefabricated buildings. The contents of such constructions must also be insured with a specialist insurer.
Covers machinery and equipment against the cost involved in accidental and mechanical breakages. The trend is to cover only large and expensive installations. The insured value is the full replacement value of the particular piece of equipment.
Is meant to follow the above coverage where stocks are damaged as a result of a loss described above.
Conventional insurers usually limit this type of coverage to a maximum of R5 million. For more coverage, the following options are available:
(ii) For larger businesses - the full spectrum of coverage for the required amount is taken out with the specialist insurer. Standard coverage is then unnecessary.
Provides cover for costs incurred to return faulty or defective products to the producer or seller.
Directors and/or key personnel of businesses can possibly be held liable in their private capacity where 3rd parties suffered losses as a result of wrong decision making, for example. For this purpose specialist coverage is available in two options - a cheaper option for the smaller business and one for larger businesses.
Coverage for buildings and content is often excluded during building or installations on the insured premises. For smaller projects coverage might possibly be continued, provided this is cleared out in advance with the insurer in question and against payment of an additional premium. For bigger projects a CAR policy must be obtained from a specialist insurer.
Transit coverage obtainable from specialist insurers usually pertains to transport contractors and the cargo industry. Marine insurance and coverage for import and export are more applicable to manufacture and the wine industry in particular. Consequently more information about this below.
There are basically three kinds of export coverage:
(ii) Cost, insurance and freight (CIF) - With regard to insurance, this is the scenario where the exporter has the least risk. The product is insured throughout from the time it goes into transit at your premises until such time as it lands with the buyer on the other side.
(iii) Cost and insurance (C&I) - The same as above, except that the freight is not the exporter's responsibility.
The opposite applies here and for insurance purposes it is advisable rather to import on a free-on-board (FOB) basis. From the time it is safely over the side of the ship, the product is covered up to its final destination.
Air freight insurance can also be arranged with the same specialist insurers.
Risk management is a specialist area, but you can limit premium increases indirectly by applying a few simple risk management principles, for example:
(ii) Ensure that machinery and equipment are regularly serviced and properly maintained.
(iii) Ensure that electrical wiring, switch-gear in particular, is in a good condition.
(iv)Make your personnel aware of insured dangers, so that they can act preventatively.
Ask your broker
Recent statistics show that where insured parties experienced the dilemma of being underinsured or wrongly insured, in most instances they had never consulted a broker. Make use of a broker to procure the best coverage options at the best price on your behalf and ensure that you do not become one of the statistics.
For comprehensive advice contact Andries at:
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