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Tuesday Morning Insurance Tidbit - Spills, Fires, and Fish, OH MY!!!

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Happy Tuesday Morning, ADI-Land!!!!!!!!!!!!!!!

    

     I know, I know, you are probably currently undergoing some-sort-of anxiety as well as other physical symptoms of withdrawal associated with not having you weekly dose of the Tuesday Morning Insurance Tidbit for the last couple of weeks.  Well dear reader, sit back, take in a deep breath, sip your coffee or what-have-you, and relax.  I am back and you can rest easy knowing that the TMIT is back in all of its outstanding glory for your reading pleasure ….. You’re Welcome!!!!!!

     Yes, it has been a few weeks since the last installment of the TMIT and for that I apologize.  As it turns out, InsuranceMan 2.0!!! was otherwise occupied administering superhero justice in a different capacity.  Suffice to say, although it was not insurance justice, it was justice nonetheless and it was doled out in healthy, hefty amounts to the evildoers.

     With that said, let us get on to todays “Tidbit”.  As you all are aware (unless you have either been under a rock or doing an insane amount of runs and bottling to get ready for the 4th of July sales) there have been a lot of sizeable disasters in the distilling world as of late.  As you know, the Barton bourbon warehouse #30 that initially collapsed back on June 22nd ruined nearly 18,000 barrels of Bourbon.  Despite attempts to shore up the warehouse and save what bourbon was left, those attempts proved to be unsuccessful as the rest of the warehouse came tumbling down on the 4th of July destroying the remaining barrels.  Ugh, the horror!!!!

     Then on July 2nd we had the Jim Beam fire in Woodford County, Kentucky that destroyed 45,000 barrels.  Again, THE HORROR!!!!!!!!!!  This is just insane, people!  Now, to make matters worse, an alcohol plume 23 miles long has spread down the Kentucky River from the runoff killing innumerable amounts of fish.  Although Beam Suntory has brought in a team of environmental cleanup contractors and consultants the damage is far reaching and unfortunately far from over.

     As if all of this was not enough, back on March 5th of this year Sazerac had a 120,000-gallon mash spill in which not only was there a massive cleanup involved, but people were also injured.  To this I truly say, OH THE HORROR!!!!!!!!  Loss of property, damaged stock, and massive cleanup efforts are one thing, but injury to human life is undoubtably something that gives us all pause and is certainly “worst case scenario”.  Things can be replaced, people cannot.  My heart goes out!

     So, why am I bringing you all this doom and gloom in todays “Tidbit” you may be wondering?  “I’m just a micro-distillery and I don’t have anything close to 45,000 barrels or 120,000 gallons of mash!  What does this have to do with me?!?!?!”, you may wonder.  Well, honestly, it has everything to do with you and here is why.  Yes, although it is true that many of these larger disasters took place at the “big boy” distilleries and many of those are either self-insured or coverage is placed with a large reinsurance company, it still has an impact on all of us.

     Although the losses in these aforementioned cases may not have a direct impact on many of the insurance carriers that I work with, the overarching scenarios certainly do.  Underwriters are a fastidious bunch and they pay a lot of attention to the news, especially when it has to do with an industry that they are providing insurance coverage for.  Although the claims of these horrible losses may never hit my carriers P&L sheets, that does not mean that they are not paying close attention to the types of losses, the severity of the losses, and the frequency at which they are occurring. 

     That is an interesting point.  “Frequency” and “Severity” are two terms that are often batted around in the insurance world.  Some may argue that it is better to have one event of “severity” over the course of many years than it is to have less damage but more “frequency”.  Why is that?  Well, in the world of insurance, it is not “if” you will sustain a loss, but “when” according to many actuaries (and you know how I feel about them if you have read my other posts).  Generally, actuaries will say that everyone will have a loss at some point in time.  And if you have never had a loss, then you are due to have one sooner than later.  I don’t like that saying, but it is somewhat true.  “Severity” is sometimes better in that if you have one large loss over the course of a decade it could be said that everyone is due to have a loss and that may not be as impactful to your premium as having multiple smaller losses every year or so.  The reasoning behind this is, that if you are having losses more often, than there is potentially something inherently wrong with your process, safety protocols, or overall operation.  Underwriters and actuaries do not like “frequency” in the slightest.  These types of losses often have a greater impact on your overall premiums and can even lead to loss of coverage completely.

     Circling back around, these news stories and losses have an impact on the industry as a whole since they demonstrate that there is a potential for losses within the distillery business.  Fire is of course one of the utmost concerns that carriers have when insuring alcohol.  Alcohol is flammable and fire can spread quickly.  In the case of the Jim Beam fire, they are hypothesizing that the initial fire was started by a lightning strike.  Obviously, if lightning were the cause than this was not an operational or safety issue on the part of Beam Suntory, but it still resulted in an incredible loss.  A loss that now is not just a loss of product, building, and value but now it is also an environmental loss, or a loss due to “pollution”. 

     The point to all of this being that no matter your size of operation, things can and do happen.  Things that more often than not are out of your control.  Tanks leak, structures give way, fires break out, and people can be injured.  If it can happen on a large scale at facilities who have been honing their skills for hundreds of years than it can certainly happen (albeit on a smaller scale) at any size operation no matter the precautions taken.  Afterall, that is why they are called “accidents” and not “on-purpose-es”.

     Take for instance the matter of the Jim Beam fire.  According to sources, the building was equipped with a fully functioning sprinkler system, yet the results were a complete loss.  (ASIDE HERE …  I have made this argument time and time again to underwriters, fire marshals, etc., that sprinkler systems do not stop these types of fires, if anything they only possibly mitigate the damage slightly, but I digress!)  Could they have had lightning rods in place?  Maybe.  Would they have helped?  Possibly.  At the end of the day though, although this loss may have been due to an “act of God” (again, I don’t like that term.  I would like to think that God, no matter your manner of religion, would never destroy so much delicious alcohol) and not due to their policies or procedures.  A true “accident”.  Accidents though are what drive insurance premiums and cause underwriters and companies to tighten up their already stringent underwriting guidelines.

     That is the impact on all of us.  That is the issue at hand.  This is why these losses are devastating not only to those who have sustained these atrocities, but to all of us in the industry as a whole.  As I have written about previously (see:

), carriers have been undergoing an underwriting guideline tightening over the last 6 months or so and these stories certainly are not helpful.  So, take heed and be warned, the difficult underwriting requirements that we have all been facing could potentially become more challenging in the months to come.  So far, we have not seen an increased impact from these issues, but they are relatively new on the scene, but be prepared in the months to come.

     In the meantime, if you are struggling with your insurance coverage, need coverage to get up and going, or want to have a more in depth conversation about pollution coverage as it relates to the alcohol industry (especially if you are close to a natural body of water or waterway), just call on me, InsuranceMan 2.0!!! and I will zing to your rescue.  Until next time dear reader ….

 

Stay Vigilant!!!!!!!

 

Aaron Linden

a.k.a. InsuranceMan 2.0!!!

307-752-5961

insuranceman2.0@yahoo.com

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