Earthquake risk versus the risk of doing nothing

risk blog

Posted on 20 October 2016 by Jim Wilkes

“In only a few seconds, the rack started swaying vigorously side to side before it toppled over and barrels flew out as 600-pound projectiles. It’s just frightening to think of that mode of failure and the huge risk it carries during an earthquake. Just seeing it was enough, and that was only one stack of barrels. We’re really going to go back and take a look at this. The one thing you don’t want to be is complacent.”

- Bob Torres, Principal and Senior Vice President, Trinchero Family Estates.

Bob’s sentiment is echoed across the wine world and few regions understand those sentiments better than New Zealand. Earthquake risk here is real. While I’m writing this blog a severe 5.7 magnitude quake has been reported near Gisborne, a significant wine producing region. A month ago the same region experienced a 7.1 magnitude earthquake. Fortunately, the epicentre depth and distance allowed the region to escape lightly on both of these occasions. Back in 2007 wineries were not so lucky. Pernod Ricard suffered damage to three of its wineries and there were wine losses and tank damage.

It should come as no surprise then, that these days earthquake risk is top-of-mind for winery designers. Earthquake risk poses a clear and present danger and it requires serious consideration. The consistency of large seismic sequences in wine regions around the world in recent years has proved beyond doubt that infrastructure and people are at risk. Also well proven is earthquakes do, have, and will, strike without warning.

Financially, there are many risks to winery operations stemming from earthquakes as well. For example, typically, at a small to medium size winery, 60 percent of the asset value can be sitting in the wine tanks or barrels as inventory. A loss of that magnitude would be catastrophic for most SME wineries. Insurance experts are also concerned about earthquake risk and they have highlighted their concerns. Garry Mooney, Managing Director for ICIB and Senior Broker Daniel Szegota stated to Rural News Group…

“It’s probably not surprising that the risk with the highest potential loss to a winery in New Zealand is damage caused by an earthquake.”

Enterprise Risk Management is rapidly ascending to become an integral part of strategy for corporate wine businesses around the globe and small- and mid-tier wineries are picking up on the trend. If you own, run or manage a winery in a seismic region, earthquakes should be top-of-mind. Unfortunately, they’re not quite there yet. Nick Svetcoff, a Californian broker from John Sutak Risk Services reports…

“Of our 500 winery clients, none have earthquake insurance.”

He goes on to explain that earthquake insurance for wineries in California is three times more expensive than property insurance and has a high deductible, typically around 15% of the total value of the property and all of its contents. That’s a frightening statistic when you consider Napa on its own has 789 licensed wineries with combined sales of over US$5.5 billion. Worth protecting?

A resounding yes is the answer. The good news is there are people who care. Founder and Managing Director, Will Lomax, stood alongside a winery owner client in the aftermath of a 2013 Marlborough, New Zealand earthquake, and witnessed thousands of litres of valuable, hard-earned wine disappear down the drain. He vowed to create an engineering solution that would protect wine tanks from this kind of damage in the future. The result of that innovation and commitment is the first genuine seismic tank system specifically designed to protect liquid storage tanks. The risk mitigation portfolio has now been expanded and insurance now comes in more than one format.