The evolving insurance needs of today's winegrowers and collectors


Wine is big business. Volatile weather can pose big risks to winemakers and threaten their yield. Clélia Duvoux, Business Developer, Agriculture – Europe, at AXA Climate and Patricia Naudan, Underwriting Manager Art, Specie & Bloodstock for AXA XL in France, explain how insurance coverage is evolving to meet the needs of today’s winegrowers and collectors.

“Wine is the only artwork you can drink,” according to Navarre-based winemaker Luis Fernando Olaverri. From the serious collector, to the wine investor who treats it as an asset class, to those of us who enjoy a glass or two with our meal, wine is a commodity valued by people the world over.

And wine is big business. A study by Zion Market Research found that the global wine market was worth $302 billion in 2017 and is predicted to grow to $423.59 billion by the end of 2023. Demand for wine shows no sign of slowing. But amid climate uncertainty, the risks to crops caused by weather events are becoming ever more important.

Climatic changes can have dramatic effects on wine growing. The town of Beaune, in the Burgundy region of France, has kept records on wine harvests for almost 700 years; those records show that rises in air temperature over the past 30 years mean that grapes are now harvested more than two weeks earlier than the historical norm.

In recent years, volatile weather has caused damage to crops in some of the most famous wine-growing regions in the world. The French agriculture ministry, le Ministère de l’agriculture, de l’agroalimentaire et de la forêt, said that 2019 wine output in France would be down by about 12% on average across the country because of a period of extreme weather-related events that included frost, hail, drought and wildfires.

According to the ministry, overall wine production likely will be about 43.4 million hectolitres for 2019, down from 49.4 million hectolitres the previous year; a hectolitre is equivalent to about 133 standard-sized wine bottles.

Frost has always been a particular concern for winegrowers. In 2017, the world-famous wine-growing region of Bordeaux was hit by a severe frost that reduced wine production by about 40%. The 2017 frost also affected other famed wine-growing regions, including Champagne.

Winemakers take steps to reduce the effect of frost on their crops. Some use heaters, candles or controlled fires to try to fend off frost. Others even hire helicopters to hover over their vineyards creating a down draught to circulate warm air over the vines, staving off frost.

The 2017 frost was a wake-up call for many winegrowers several of whom lost large swathes of their crop – some Appellations in Bordeaux lost as much as 80% of their harvest.

A parametric yield protection coverage can help protect clients all the way through the wine industry supply chain.

And in addition to viticulturists, there are multiple other industry sectors whose revenues are highly dependent on the changes in the weather. Those include agri-services companies, which typically are paid based upon how many hectares they harvest; bottling companies; and companies that supply corks or labels. This is where parametric insurance solutions can help those industry actors to smooth their balance sheet in case of climate risks such as frost, drought or wildfires.

A parametric, or index-based, insurance coverage is based on objective and transparent indices such as temperature, total rainfall or number of burnt hectares. The payout is triggered as soon as the agreed-upon threshold is met. This means that no costly farm visits are required and payouts can swiftly reach the insureds allowing for a quicker recovery process.

A parametric yield protection coverage can help protect clients all the way through the wine industry supply chain. This coverage offers protection against a drop-in crop production based on the chosen historical yield data for a particular Appellation – the protected geographic area in which a certain wine is grown. This coverage also provides protection for crops against disease, which typically is excluded from traditional insurance policies. Certain diseases that affect vines can be caused by humidity or too much sun, for example. Clients do not need to buy the coverage for their entire crop value, but just the portion that is vulnerable to a particular weather event, such as frost.

For the wine industry, this can be an efficient solution to ensure that the revenues are protected, and payouts are swiftly transferred, should a severe weather event threaten a harvest.

A frost protection coverage is another solution to help financially protect vineyards against the risk of spring frost that may have devastating effects on the crop. For this cover, we model minimum daily temperature from public or private weather stations to create the index-based insurance cover. If the temperature drops below the predefined threshold then our clients quickly get paid, regardless of the extent of damage to their own crop.

As climate unpredictability continues, we are talking to more and more clients about using parametric triggers to help give them more protection and certainty.

Inside the cellar

The risk management efforts associated with wine do not stop once the wine has been bottled.

Collectors of wine – whether those collections are large or small – need to take steps to make sure their wine is kept in optimal conditions until it is ready to be drunk.  

Oxygen is the enemy of wine; corks must be airtight to ensure that no oxygen can get into the bottle. Oftentimes, therefore, wine bottles are stored on their sides to ensure that the cork is always in contact with the liquid meaning the cork is always swollen and, therefore, not in danger of drying out, shrinking and allowing air in.

One of the most important factors to consider when storing wine is the temperature in which it is kept. Fluctuations in temperature can affect the quality and taste of the wine. Experts advise storing wine at a temperature between 7.2 degrees Celsius and 18.3 degrees Celsius, with a wine-cellar humidity level of between 50% and 80%.

It is also important that wine be kept out of bright light until it is ready to consume.

Insurers can help collectors of wine to cover their collections, both during transit and once installed in the cellar, against theft, accident damage and damage caused by fire and water, for example. This can include damage to the bottle, the cork, the wine label and the wooden crate. While some collections might be covered under a household insurance policy others may require a standalone policy.

In the event of a loss, the indemnity is calculated by a wine expert – or oenologist – based upon the replacement value of the wine on the day of the claim.

Whether you are a serious collector, or just enjoy the occasional tipple, there is a great deal of risk management and risk transfer that goes on behind the scenes before you pour that glass of wine. Winemakers, insurers and risk experts are all taking steps to ensure that the very best wine is harvested, produced, stored and poured.

A votre santé.

Authored by AXA XL

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