Insurance: a three tiered step-by-step guide for your distillery

[InsuranceMan]

Insurance: a three tiered step-by-step guide for your distillery

I am asked constantly by folks from all parts of the globe (literally) as to how the insurance process should go, what they need, and at what point do they need it. Actually, I am asked about this so often that I decided to sit down for a few minutes and put it into post since there must be more folks out there wondering the same thing.

For the purpose of this post I am going to only address the process for the US at this point and do so at a 30,000’ perspective as to not bog anyone down in the minutia of deeper subject matter. However, if you are in “some other place” or would like a deeper understanding of some piece of insurance please feel free to message me or email me as I do have quite an extensive knowledge of the process in several other lands and a deep understanding of the nitty-gritty nuances of all of the insurance aspects. Anyway, on to the process.

The typical insurance process, step one: You are applying for your DSP and you run into the section where it is calling for the DSB (Distilled Spirits Bond) that you need to give to the TTB in order for them to process your permitting. This aspect of the “insurance” side of things is perceived as one of the scariest and most difficult processes to struggle through. I am here to tell you that simply is not the case. Many people have horror stories or have heard from someone that this was the worst part of the whole process. That the bonding screwed up everything and set them back months, or that when they were finally able to get through this horrible process the bond ended up costing them an insane amount of money. Although many of those stories are true and oftentimes people do lose precious time or they indeed pay an incredible amount of money for their bond, it all boils down to one thing; the person they are working with.

Knowledge and relationships are king when it comes to bonding and anyone that has worked with these types of bonds for years on end should be able to assist you through the process in the matter of a few minutes. From assisting in the figuring of the taxable liability amounts, to the application process, this truly should not take longer than about 15-30 minutes start to finish. Once those “meat and potatoes” aspects are figured out and the applications are complete you should be able to have the executed bond form in your hands and ready for submittal within 24-48 hours. If you are working with someone who has the knowledge and relationships in this industry, the bond should be a done deal within a day to possibly a few days and should never come back to haunt you. Don’t get me wrong, there is a myriad of things that can go wrong and many ways that the bond can mess things up. If you have an insurance professional though that knows their way around the bonding and what the TTB is looking for and how to avoid the pitfalls and snares, it really is a one-and-done deal. It really is that simple. Find someone who knows what they are doing and you will not lose any time and it will be the cheapest thing that you purchase for your distillery, hands down.

The typical insurance process, step two: You have either acquired a building or are obtaining a lease on a space and there is an insurance requirement. If you are buying a location it may be that the lending institution is requiring that they be named “loss payee/mortgagee” on your insurance as well as possibly “additional insured” status and they want a certificate or evidence stating such. If you are signing a lease, the landlord may have a requirement to be listed as “additional insured” or at the very least require a certificate showing that you have insurance. Again, if you are working with someone who has an understanding of distilleries and has a great product where you can add and subtract coverage’s, this should be a very easy step to accomplish. If you are in a “triple net lease” situation and are required to insure the building, again, it should not be an issue. This is basically all there is to the second step, the securing of insurance for the location and your business.

The typical insurance process, step three: You are ordering your equipment and items you will need in order to get set up and running. Once you have a policy put in place to satisfy those items discussed in step two, this is a no-brainer. The equipment and contents side of the policy is one that should be very simple to accomplish. Watch out however as to how these items are listed and what “perils” or coverage is being offered and/or excluded. This is one area where a deeper knowledge of how things work within an insurance policy is key. Someone who knows what they are doing should be able to provide you with a better and lower premium on the equipment than what is available in regards to standard “contents” coverage. Without divulging all my trade secrets here I will simply say that there are a variety of “legal and ethical” tricks that can be used to keep your costs down while actually providing you better coverage.

As well, at this time you may be in need of securing many other types of coverage in order to make sure that you are properly insured and protected moving forward. Liquor liability; Cargo coverage; Products and Complete Operations; Workers Compensation; and Product Valuation among many other things may need to be considered at this point. An agent with experience in this arena should be taking the time to discuss your business plan with you. They should find out where you are at currently in regard to your needs and where you see things progressing to anywhere from 6 – 18 months from now. This process will not only assist you with the “realization” of timeframes and considerations, but it will also allow the insurance professional the ability to plan ahead with you or address commonly overlooked insurability issues.

Again, watch out for how these coverage’s are written. The product valuation is one of the biggest issues that I see being overlooked. Almost ever carrier in the country uses the same endorsement form to insure your product and for the most part it is very lack-luster. I personally have developed and had adopted an endorsement form that gives true value to your product in the way in which you and I decide it should, not how the insurance company “may” decide to value it. God forbid the unforeseen happens and you lose everything, including your product. That is not the time to ask the question as to how you were insured and what you can expect in the way of coverage.

In conclusion, this is a rather simplistic overview of an overall more involved process. With that said though, if you are working with someone that knows what they are doing, it actually can be this easy. A few things to keep in mind:

1.) Know your insurance professional and their background/knowledge. Ask the hard questions, find out how much experience they have in doing this type of work and how many other distilleries they write. YOU DO NOT WANT TO BE THE GUINEA PIG! This is your business, your baby. Treat it as such. If you are not comfortable with their answers, move on. Beware of the agent that says, “Well …… I have written a brewery before. How different could it be?” R U N !!!!! I know I am preaching to the choir, but a breweries and distilleries are VASTLY different in so many ways, and the insurance is certainly one of those ways;

2.) Know what you are purchasing. People have a view of insurance often times that it is just “throwing money down a rat hole”. That it is one of those things that costs a lot of money and they never get anything for it. I understand, but keep this in mind ….. If you know what you are purchasing and the value it brings to you, you will not feel this way. As well, in a perfect world you hope it works out that way. That you pay money in for the whole life of your business and never get anything back from the insurance company. If they have to make a pay out that means that you have either hurt or killed someone or you have sustained an incredible life altering loss to your business. I am not talking about the roof claims or hail type situations, I am talking catastrophic here. If your insurance person makes you full aware of what you are buying, you should never feel as though you are getting ripped off.

3.) Keep in communication with your insurance folks. When you make a change or even better, when you are thinking about fixing to get ready to make a change, give them a call. There may be insurability issues in what you are thinking about. Even if there are no issues, you need to be sure that you have the protection you need to cover the change. Often times the insurance folks are the last to know and that is not good. Loop them in at least every 6 months or each time there is a “big” change coming.

4.) Do it well and do it up front. If you have a good professional that is more a business partner in a way than just an “insurance agent” you should be able to confide in them, tell them exactly what you are doing and what concerns you have. You should not feel like you need to hide anything or not give them all the details. Work with them as you would a CPA or lawyer. They are (or should be, if they are not, run again) a professional and will treat your information with the utmost confidence. Be open an honest and trust them implicitly. If you don’t, why are you doing business with them at all?

5.) **** DO NOT “SHOP IT OUT” **** This is one of those areas that really does not make sense to anyone in the insurance industry. There are people out there that will call 5 different agents and ask them for a quote. They want to “keep everyone honest” and they think by doing so it will ensure they get the best deal if they have multiple people involved. Stop. If you find someone that you are comfortable with that has the background and knowledge and that you trust implicitly, let them shop it for you. Bringing in multiple people only confuses things. Insurance carriers only allow one quote to go out to the first agent in the door. So if you go to five different people they are all going to try to get it out first and block the markets anyway resulting in what you hoped to avoid in the first place. You will then be forced to sign Agent of Record letters to allow other agents to obtain other quotes that some other agent blocked, blah, blah, blah. It is a nightmare for you, the agents and the carriers. Just don’t do it. Pick someone, one agent and work with them exclusively, end of story.

I hope this information is helpful and valuable to anyone reading it. The insurance and bonding process should be easy and can even be fun if you get the right person. If you have any further questions or if you view me as being “that person” to assist you with your insurance needs please reach out to me. You can PM me here on the forums, email me at aaron.linden@hubinternational.com or call or text my cell at 307-752-5961. I truly am here to help in any way that I can and I am always happy to answer any questions that you may have.

Have a great Memorial Day Weekend!

Best,

Aaron “InsuranceMan” Linden