All Risks Are Not the Same
In the world of insuring against risk and business exposures, all risks and exposures are not made the same! A drastic example of this is the risk and exposure of a retail clothing store compared to a microbrewery with a connected taproom.
Craft Beer Industry Growth
Up until the 1970s, consolidation dominated the beer world. By that time, there were under 50 breweries in the United States. Today there are over 2,500 craft breweries, and the growth doesn’t seem to be slowing down anytime soon.1 Believe it or not, in Indiana there are now over 100 craft breweries! The craft brewery explosion in Indiana has been primarily lead by Three Floyds Brewing Co. in Munster, and Sun King Brewing in Indianapolis, who have each been around for more than ten years. The insurance industry is usually slow to catch up with growth in any industry, and it makes sense that this is the case. Insurance companies set premium rates using actuarial algorithms. The humans and computers creating these algorithms rely on predictable (hopefully) data. Their job is to ensure the premiums they are helping an underwriter set will return a profit for their company, while also being competitively priced against other insurance companies competing for the same business.
Insurance Companies and Agents Play Catch Up
Fast forward to 2016, and we find ourselves in an insurance market for craft breweries where there are a handful of insurance companies who are excited about insuring craft breweries. In fact, some of these companies have “crafted” tailored insurance programs for craft breweries that include coverage for industry specific exposures like: spoilage, contamination, leakage, and equipment breakdown. Even though insurance companies are catching up to industry, it does not mean a craft brewery will be able to get insurance from one of these companies. It may be that the agent the brewery is working with does not have access to the carriers who want to insure craft breweries, and/or it may be that the agent does not know the craft brewery industry, and the product offerings of their carriers well enough to know where to market a brewery’s insurance.
A Lurking Hidden Tax and Fee(s)
So what happens when an agent doesn’t have, or know about, a market for a craft brewery? When an agent doesn’t have a “standard” market for a risk, one takes the risk to the “surplus lines” market. This is a secondary market for risk. There are a lot of risks which require one to go to a “surplus lines” market. It is not a bad thing to acquire insurance this way. The policy one can acquire is typically at least close in quality to a policy one can acquire in the standard market. That said, there are taxes and fees lurking in a surplus lines policy, which means these policies are almost always more expensive. In one policy I reviewed, the craft brewer was paying an additional $574.23 in taxes and fees.
How to Check Your Policy for Lurking Hidden Fees
- Grab your policy and turn to the “Declarations” or “Dec” page.
- This page should give an overview of your premium. Look for the “Premium Total”. If your policy is placed in a surplus lines market, after the premium total you will likely see “Other Charges”. These charges may include an inspection fee, service fee, and surplus lines tax.
- If you see these, or want your policy to be reviewed, give me a call: (317) 869-9180 or send me an email: firstname.lastname@example.org. I am passionate about helping the craft beer industry thrive in Indiana!