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Fire Insurance a Moving Target

Localized Impacts Affect Some Vineyards Dramatically, Some Not at All

Driving up Soda Canyon Road on Napa’s east side, the neighborhood under the Vaca mountains looks different these days. Gone are many of the old wood frame houses, replaced today with new, boxy homes built of fire-resistant materials.

The October 2017 Atlas Fire was the big changemaker. The fire destroyed 781 buildings and over 51,057 acres of vegetation.

Chris Vandendriessche remembers what life was like before the fire when his family’s winery, White Rock Vineyards, had just one insurer. In 2017, the family lost all the structures on their property, including the 1870’s stone winery that had been converted into a family home for his parents (who founded the family winery), the modern winery a few hundred yards away and the small tasting room adjacent to it.

With money from their insurance claims from Travelers Insurance, the stone house innards were built anew, preserving the stone structure on the building’s outer shell. The winery caves were restored.

But today, Travelers no longer provides their coverage.

“Before the fire, we could have one carrier that insured the entire property, liability, equipment, all the houses, caves, the entire thing was at one company,” said Vandendriessche. “After the fire, nobody wanted to take on that much risk because that meant you were exposed to all the potential damages in a fire. And since then, we’ve had to take eight or nine companies, each one taking a little tranche of the insurance needs of our business.”

But each year, the family still must seek new coverage and new insurers.

“Every year since the fire, two or three of those companies have backed out, and we have to find new ones. The prices have tripled for less coverage. So, that’s our insurance picture.”

The Vandendriessche’s insurance agent, Jim Stetson, Agency co-owner of Leavitt United Insurance Services, deals with properties all over the state. He says the rising rates are highly localized and that insurance rates for vineyard and winery owners in other parts of the state have not been affected by the wildfires.

“For somebody with little to no wildfire exposure, we can still get basically the same kinds of programs that we had in the past,” he said. “It depends on the wildfire risk, the property values and loss control, and brush mitigation. If you’re in American Canyon or Lodi or Sacramento or somewhere like that, the wildfire concern isn’t going to be really an issue. But in a lot of the other areas, you are going to be exposed to that.”

Wine Warehouse Insurance Affected
It also depends on where wine is stored, Stetson said.
“Aggregation can be an issue; that’s where carriers only want to have a certain amount of limit in one area so that if there’s some kind of catastrophic wildfire event, they’re not losing it all in one event. So, they don’t want to have too much value, say over $100 million, in one five-mile area.

“We see that at the wine warehouses in American Canyon right now, where there’s aggregation issues with certain carriers where they have too many clients storing wine or producing wine in one location.”

Insurance Tied to Bank Loans 
The insurance issue is complicated because it isn’t just about insurance. Insurance is linked to winery finance since banks require insurance to lend money.

“2017 brought increased awareness of the problem, and that’s when the insurance industry started pulling out,” said Michael Miiller, director of government relations at the California Association of Winegrape Growers (CAWG).

“Basically, where our growers are is they have a property that has a structure on it. And if they have any kind of line of credit already lending at all, they have to have proof of insurance as a condition of that lending, which means they have to have insurance.”
“We’re in a crisis situation,” he said.

Mixed Reviews for the FAIR Plan
The state of California has stepped in to create the insurer of last resort: the FAIR Plan. FAIR Plan’s policy numbers more than doubled between 2018 and 2022 from 127,000 to 272,000 (including homeowners as well as businesses.)

“Right now, it’s the only option available to people, to many, many people,” said Miiller. “And when your safety net is all you have, that’s not sufficient. They have a limit to how much they can cover.”

In March 2023, the California Department of Insurance announced it would up FAIR Plan caps for commercial businesses coverage amounts “from $8.4 million to $20 million per location, and under its Division II Business Owners Program, from $7.2 million to $20 million per location,” according to a department press release.

Stetson explained that the FAIR Plan is not a state run program but is run by the insurance companies themselves. “A lot of people think it is [state-run], but it’s a pool of all the admitted carriers doing business in California.”

That means each new change requires negotiations between the department and the FAIR Plan.

Reducing on-property fire risks may improve coverage options in the eye of the insurer, but there is no guarantee of return on investment.

By summer 2023, the department had still not implemented the increases announced in March and said in an email to Grape & Wine the higher limits would most likely be available by end of 2023. That leaves many businesses exposed again during the 2023 vintage.

“The FAIR Plan does not cover things like faster water damage or falling objects, freezing pipes,” said Stetson, “so there’s some gaps there.”

He said commercial insurers are starting to fill in some of the gaps. “That’s starting to come back online and provide a little bit of relief.”

Miiller pointed out that even when the $20 million limit is implemented, the amount is per policy, not per structure. “It would be better if it were per structure,” he said.

The CAWG official criticized the state’s insurance regulators for being slow to act.
“We’re looking at how they set rates, we’re looking at the expediency of rate approvals and those kinds of things. There’s a lot that can be done at the Department of Insurance to speed things up. And they’re just not doing it. When you look at when Lara expanded the FAIR Plan, it took them forever to approve their rates.”

“When there’s no product on the market, growers have no options,” he said.

Still, despite wildfires in Oregon, the situation is quite different there, Miiller said.

“You can find growers in Oregon who aren’t having near the problems that they’re having in California. Their regulatory system is entirely different.” That’s because Oregon does not set commercial insurance rates.

The Crisis Continues… for Some
Miiller warned that the crisis, however unevenly distributed it is, is far from over.
“If we don’t start looking at this like the emergency situation that it is, we are quickly going to see a bunch of industries that are going to pay some serious consequences because they can’t buy insurance. Insurance isn’t an option. You have to have it to be in business. If it is not available, the dominoes start falling.”

“So, from my perspective, I think there really needs to be somebody to step up and say, ‘Hey, we have an emergency. And I’m going to implement these emergency actions to start to address this problem.’”

Yet, when it comes to insurance, some areas of the state are stable, said Stetson. “For folks in the Central Valley, if there’s no wildfire risk, the options are pretty much what they were [before 2017]. If there’s wildfire risk, then we have to start getting more creative.
“If there’s no wildfire risk, that’s the carrier’s main concern. We have seen a little bit of a rate increase, but there’s still a lot of carriers playing in the space.”

Reducing Risk
What can property owners do to reduce risk in the eyes of insurers?

“It’s a moving target,” Stetson said. “Defensible space is always the first thing that people do, cutting back brush, removing low hanging branches and getting ladder fuels off the property or away from the buildings. That’s definitely helpful.

“Some people have contracted private firefighting companies to consult. Some will spray fire retardant seasonally around the production buildings, and then they sometimes have them on a retainer to come in…so if there’s a wildfire event, they will help defend the property.”

Sprinklers make sense, he said, but there’s no guarantee installing them will bring a return on the investment. “Unfortunately, it’s difficult to ask somebody to spend that much money because it’s not necessarily a guarantee of an offer of coverage. The insurance companies can make somebody put in a six-figure sprinkler system, and then that same carrier that asked him to do that next year could pivot,” he said.

“A lot of people in the brushy areas are stuck in the process,” he added.

Another limitation of the FAIR Plan: It doesn’t cover wine in tanks. “Anything not bottled yet is excluded from coverage,” said Stetson. “So that’s a pretty big issue for people because typically, once it’s case goods, they can move it to a third-party storage location and find palatable, affordable coverage from an admitted carrier.”

According to the California Department of Insurance, counties where 25% or more homes are in high fire risk, these are the top-ranked counties, by highest exposure first: Tuolumne, Trinity, Nevada, Mariposa, Plumas, Alpine, Calaveras, Sierra, Amador, El Dorado, Mono, Lake, Mendocino, Siskiyou, Butte, Lassen, Shasta, Tehama, Santa Cruz, Humboldt, Napa, Del Norte, Modoc, and Placer.

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