Let’s be honest, absolutely no one enjoys dealing with insurance issues. In the best of times, insurance can seem like a pricey extravagance, a hedge against some hypothetical crisis that will likely never appear. And every year when it comes time to renew your coverage, the irritating process starts all over again.
There’s at least one person who loves talking about insurance, especially when it comes to brewery insurance. Peter Whelan of Whalen Insurance in Northampton, Massachusetts, didn’t invent brewery insurance but he has been in the business about as long as anyone. Brewery insurance used to be “damn near impossible back in the late ‘80s,” he notes. But as Whelan was getting ready to enter the insurance trade, he knew he needed to specialize in specific market segments. So when Janet and Peter Egelston opened the Northampton Brewery in 1987, Whelan helped insure their operation. From there, Whelan helped the then titled Association of Brewers develop its insurance program for the industry. Now he has advice for brewers looking to insure their operations or just review their policies.
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Find An Expert
Whelan’s first piece of advice is to find an agent with a lot of experience insuring breweries. “Does your agent know a lot about insuring breweries, that’s number one,” he says. “The insurance industry is full of cowards and lemmings,” he says with a laugh. “Nobody will do something until someone else does. And then they all follow up.”
You have to ask whether the company has experience insuring breweries or “whether they are just trying to take a standard insurance policy and sort of jerry-rig it so it might work,” Whelan says. “You want to deal with a company that specializes in it and you want that company to be A rated.”
Tap Rooms Changed The Landscape
“One thing that became a real challenge was the new model of just the small taprooms,” Whelan says. “It sent shivers up and down the spines of the insurance industry because a lot of companies don’t want to insure places like restaurants if they’re more than 30 percent alcohol sales. And here you’ve got these taprooms that are 90 to 100 percent alcohol sales.”
Eventually the industry figured it out and recommended taprooms not stay open until bar closing time so they’re not the last stop of the evening. But the more that your taproom resembles a nightclub, where there may be dancing or live music, you may need specialized coverage, including for worker and customer liability.
Business Interruption Insurance Is Key
“Your insurance company is what is standing between you and bankruptcy,” Whelan notes. So it is crucial to get your coverage correct. Insurance claims can include beer spoilage due to contamination, product recall if packaging fails, and business interruption insurance if there’s a fire or flood or if equipment breaks.
Coverage for business interruption is where many breweries underinsure themselves. According to Whelan, breweries often fail to account for the loss of cash flow following a coverage incident and focus instead on the costs for replacing equipment. But what happens if your tap room is forced to close for several weeks or months? You need to account not only for expenses but also lost profits and cash flow. Most small businesses after a fire go out of business not because they lack sufficient property insurance but because they can’t survive the down time, he says.
He also counsels against trying to lowball your estimated sales and revenue to your agent in order to lower premiums. After a fire, flood, or other catastrophe, that lowball effort may lead to the permanent closure of your brewery if you lack sufficient coverage. It’s key to be honest with your agent. “I can tell right away if somebody is trying to lowball things, they think that’s the way to keep their costs down,” Whelan says. “But ultimately, that will come back to haunt you.”
Consider The True Costs OF Replacing Equipment
After an event requiring a claim occurs is not the time to figure out what it will cost to get back up and running. Whelan advises brewers to know the actual true replacement costs for their lost equipment and inventory. “They might have been able to pick up some bargain equipment at auctions or some special deal but if they have a fire and need to get stuff right back in, they don’t have the time to shop and need to go out and buy new equipment,” he says. So be sure to accurately reflect the replacement cost of your equipment.