Many wineries have debt of some sort, although not usually for “leverage” in the PE sense, but instead to help manage working capital.
My point is that many, many winery owners aren’t billionaires who are doing this as a vanity project and costs don’t matter. Even many of the wineries started by wealthy folks still run a tight ship finance-wise.
I’d be surprised if anyone thought that not having insurance to cover loss was a wise business strategy. Sure, actuary etc., but most people in this business don’t think that way.
And, also, no, most wineries are not financed with OPM. It tends not to work well that way, because the return profiles don’t meet the hurdle.
The better-written distributor contracts require it. Granted, not everyone has distribution, but then if you’re selling DTC, then you still want liability insurance for people visiting the tasting room, and employees, and everything else that goes wrong at a business. And product liability coverage.
If you have a bank loan you have to have insurance. A mortgage is a mortgage. We have to provide proof of coverage to the bank every year. Yes, believe me I think insurance is somewhat of a racket but if you’re operating a business with acreage, employees, buildings and some substantial amount of inventory and you don’t have insurance you are probably both ludicrously rich and supremely stupid.
In Oregon, liquor liability insurance is required of all licensees. It’s required on the winery premises whether inventory is stored there or not.
As a landlord, if you have a tenant who is paying based upon production quantities, I would require them to insure their bonded inventory(and yes, your wine in barrel is inventory and quite obviously stored at the rented space) or pay 100% of fees in advance of production.
Right, but those kinds of insurances ought to exist largely independent of the question of whether:
A) A fire will burn the winery & the vineyards to the ground.
B) Smoke damage from a fire will cause the red wines to be largely undrinkable & unsaleable.
I guess I don’t know what it is that the distributors want insured:
The possibility of accidentally poisoning the customers?
The possibility of a winery being unable to produce product for the distributors to sell?
By and large, I should think that product liability coverage ought to be independent of structural coverage of the facility & vineyards & the ability to produce saleable product.
Unless of course you’ve got collusion on the part of the insurance cartel and the government regulators ostensibly charged with regulating the insurance cartel.
We’re seeing that a lot around here now - insurance companies refusing to sell policies on single ticket items - they only agree to write umbrella policies on everything in your entire universe of possession.
If we had functioning justice departments at the state & federal level, then we could Sherman-Anti-Trust these insurance cartels, but sadly, all of the various justice departments in this country are owned lock stock & barrel by Organized Crime Inc.
PS: There is kinduva nexus between the two phenomena [product liability versus structural integrity of the winery and the vineyards in the instance of fire or earthquake damage] - I suppose it might be possible that smoke-damaged reds could sicken certain customers [especially the hypochondriacs and the professional grifters] - now that would be a nightmare.
And God knows we have an exponentially metastasizing population of hypochondriacs & professional grifters in this country.
The time value of the money which the average person loses on a lifetime of paying insurance policies could very well be the leading cause of poverty in this country.
And it’s surely the leading cause of the Middle Class not graduating from the Middle and moving on to the Upper.
On average, almost all people almost never need insurance.
These are businesses we are discussing and wine, production facilities, vineyards, and warehouses are the assets.
Breakage, theft, fire, earthquake, and plenty of other issues are threats.
Good luck without insurance.
I’m assuming you’ve never bought insurance for a company before? You just don’t get to pick and choose with that much detail. It’s called a “general liability” policy for a reason.
Yeah, in theory, if it worked that way, that’d be great. To paraphrase Homer Simpson, in theory, Communism works.
This is an unconventional view to put it mildly. Insurance is about pooling risk across people because we don’t know who is going to have a fire/earthquake/flood impact their property, get in a car accident, or spend several days in the hospital. Yes, ex post, most people don’t see a return on their premiums but the people who suffer losses are much better off than if they never bought insurance. (Lower risks are also typically associated with lower premiums.)
Because of insurance company bargaining power with providers, insurance also tends to result in much better prices. Going to the ER without insurance can result in enormous bills based in part on inflated prices. My sense of the academic literature is that health insurance prevents bankruptcies.
Good post, although health insurance is very different than insurance a businesses infrastructure. Health care costs have very little connection to cost of goods, and for many health issues the consumer’s well being and existence requires them to seek care. As consumers pooled resources to mitigate catastrophic health care costs, we’ve created a giant pool of resources and health care costs have sky rocketed up. I can’t imagine why that could happen….
For businesses, pooling resources to mitigate rare catastrophic costs, would be a great idea. Conversely, giving our resources to a separate profit driven company to hold for us seems less thrilling. Most companies rarely utilize insurance. When you do, while the insurance payout will help with mitigating the loss, your premiums increase and, in my opinion, you wind up paying back much or all of the insurance payout over a period of years…so it kind of seems to me that insurance is just having access to an on demand loan, that one secures through payment of monthly premiums. I hate it myself, but we still have it. Primarily because of required liability coverage by OLCC and a basic coverage of assets that is probably less than my inventory value but enough to keep me from getting put out of business by a negative event.
I agree that business insurance, homeowners insurance, and health insurance are all quite different, with different levels of competition and markups. I was reacting to the bolded sentence above about paying insurance premiums being the leading cause of poverty. The leading causes of poverty are low wages and extended periods of unemployment.
I agree with you completely. But our health care costs exceed any other nation, and health insurance costs incurred by employers could definitely be channeled to wages if we controlled them better. I would certainly hire more help if health care costs weren’t such a burden on the business. Both in currently existing costs for myself and Megan, and as a non wage expense for anyone we add.
That’s a good question. In most cases the rate pf claim is probably low enough for an industry based pool to function. The smoke situation in 2020 would not be the case. However, I don’t think many WV growers had insurance policies that covered smoke issues.
We are in a back and forth with our insurance company. In theory we have coverage. They’re inclined to think differently. We shall see. Persistence is required.
