Posted in News on 18 Mar 2022
Recent years have each seen huge wildfires devastate thousands of acres of land across California – to the point where it is likely that in many parts of the world the average person now associates the word ‘wildfire’ with the state.
Losses associated with those fires and other natural catastrophes led to a retreat by the London market from insuring some risks for some businesses based in the region, including many of California’s celebrated wineries. Yet there is now a change underway in the London market that is giving the owners and employees of those wineries cause for renewed optimism.
Hard times have kept cargo capacity constricted
Back in October 2019 we reported on a hardening of the London cargo market, created in part by the impact of natural catastrophe risks, that was driving similar trends in the US. Alesco’s Cargo Stock Throughput Market Update for H2 2019 said that cargo insurers were reviewing every client and rating each risk as if it were new, not a renewal. Rates were rising as insurers tried to maintain sustainability of the cargo insurance markets. And some insurers were pulling back from covering certain risks altogether. [i]
Since then, of course, the pandemic has caused extraordinary disruption in international trade, while the effects of a range of natural catastrophe risks and losses have also had significant impacts all over the world. No less so than in the US.
The record year was 2017, however, when total overall losses reached USD146 billion. That year Lloyd’s of London reported an aggregated market loss of GBP2.1 billion (USD2.7 billion)[ii], followed by a further GBP 1billion (USD1.3 billion) loss in 2018[iii]. Those huge losses, due in part to the impact of wildfires and other extreme weather events in the US including hurricanes Florence and Michael, contributed to a significant hardening of the market.
Hard market conditions have continued to shape insurance markets, with the London market reducing capacity in some areas, turning away from certain classes of business, or adding new exclusions. It’s meant companies like wineries in locations susceptible to natural catastrophes have been forced to turn to local insurers or in some cases self-insure.
How caves have helped turn the tide for wine merchants
But at the turn of the year and now into the first few months of 2022, we’ve started to see some signs of change; and Alesco have redoubled efforts to bring more cargo risks back to the London market. One example of this is our work on placing cargo stock throughput cover for wine producers and wholesalers in California, helping them protect their assets against natural catastrophes.
Cargo stock throughput policies cover the client once their grapes are picked from the vine, in storage ready to be processed and distributed as a finished bottled product worldwide. By getting our surveyor experts on site to examine the risks that affect specific locations and the steps that companies are taking to mitigate those risks, we can help them find the cover they need.
Those steps could include cutting back vegetation that surrounds their warehouse – but they may now also include use of different storage locations. Some companies are using caves as secure locations that provide additional protection against both the direct and indirect effects of fire and smoke.
Fires may actually pass over the hills where a cave is located, destroying vegetation and property outside the cave, but leaving the goods stored inside unharmed. Caves also tend to withstand Earthquake impact better – another important consideration in California. To our knowledge, at the time of writing, no cave-based facilities of this kind have been the subject of the losses that occurred in London and many of our Wine insurers see this as a favourable part of the risk.
Despite additional capacity now being available in this part of the market, underwriters are still being quite selective about exactly what they bring back onto the book. Local insurers are still taking on risks of up to about GBP5 million (USD6.7 million), but the bigger wineries, in need of primary cover upto GBP20 million/ USD30 million, are now able to turn again to the London market for cover. The London market is focused on providing cover for the large catastrophe loss events. The rates are high compared to other general Cargo interests but London Insurers are ready to provide options for companies that are able to prove both that they are putting appropriate resources into risk mitigation; and that they would be capable of withstanding other losses linked to wildfires.
Common sense approach is bringing more clients back to London
Alesco made a decision in 2020 to place all of our wine business open market so insurers were able to choose the linesize they deployed for an individual risk vs the dictated linesize’s they would get on dedicated wine lineslips. Taking this approach also opened productive conversations between our insurer and client and allows us to take a creative approach to risks going forward. Even if insurers place limits on how much cargo stock throughput risk they are prepared to take on, this is hugely useful for the our client, as they no longer need to self retain the risk.
We provide comprehensive and clear information both to the client and to the insurer about what we think could be possible, enabling both to take a flexible, common sense approach to assessing and addressing insurable risks. And delivering valuable results for everyone involved.
This part of the insurance market is still in transition and is still seeing hard market conditions. But cargo capacity is returning to London, creating new opportunities for insurers and brokers to create solutions that meet clients’ insurance needs.
We understand why some of our clients and prospects turned to local markets or self-retained when the London market retreated from covering these risks, but we want to bring those clients back. We know we have the expertise, the products and the connections across the market to help our clients access the cover they need again.
Associate Director | Cargo
[i] Alesco Cargo insurance H2 2019 Outlook: Alesco Insight Cargo stock Throughput State of the Market Update October 2019 (alescorms.com)
[ii] Lloyds of London aggregated market results, 2017: Lloyd’s demonstrates strength following 2017 major loss activity - Lloyd's (lloyds.com)
[iii] Lloyds of London aggregated market results, 2018: Lloyd’s reports aggregated market results for 2018 - Lloyd's (lloyds.com)