8 FACTORS THAT AFFECT MICROBREWERY INSURANCE:

B R O U G H T T O Y O U B Y C & S I N S U R A N C E

CONSIDERATIONS FOR STARTUP MICROS, NANOS, AND BREWPUBS

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GETTING STARTEDT H E N A N D N O W

Starting a business is always a risky proposition—even for those who have done their homework and invested the effort in a serious business plan. For craft breweries however, there was a time when success seemed almost guaranteed. As recently as 2015, Entrepreneur declared, “failure rates for new craft breweries are near zero.”

Three years later, the tides are beginning to turn. According to the Brewers Association, not only are we starting to see a slowdown in the number of craft breweries/brewpubs opening, we’re also entering a period of increased closures. (Nationwide, there were 96 craft brewery closures last year.) And although every brewery’s story is unique—with concerns ranging from overpriced rent, to undersized facilities, to plateauing retail sales—the key takeaway for anyone entering the marketplace is clear: learn from others’ mistakes.

Having an experienced team of advisors in your corner, well before you open for business, is essential. Your insurance agent should be a part of that team, ready to anticipate and weigh in on pivotal decisions in the early stages. The following pages outline just a few of the factors you may want to discuss with an agent who specializes in craft brewery insurance.

"Start asking key insurance

questions NOW, before

you choose a location, s ign a

lease, order/ship major equipment,

advert ise your hours or

of fer ings. . . "

debbie gerraughty

microbrewery insurance specialist

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W H Y I T M A T T E R S

When it comes to securing commercial insurance, some founders are surprised to discover that their “first-time” status counts against them. Carriers want to know how long you’ve been in the craft brewing industry and how much experience you have at the helm of a business; these factors correlate to loss claims figures in the same way a driver’s marital status correlates to at-fault collisions. Go figure.

Of course, there are some exceptional first-time founders. If you're one of them (perhaps because you've been homebrewing for so long or because you spent your career championing safety as a firefighter / EMT / teacher, etc.), there are things you can do to offset the disadvantage.

By adding supplemental application materials—like a one-page cover letter, a polished resume, a business narrative, or even a quick video of you and your co-founders that outlines your commitment to a successful operation—you may be able to offset some of that "first-timer" premium expense.

1 YOUR EXPERIENCE

A business narrative is a brief letter yourinsurance agent can submit to carriers along withyour application and business plan. A well-writtennarrative should help underwriters understandyour business story better, and might encouragethem to offer you more favorable terms andpricing.

busi ness nar ra tive

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YOUR ONLINE PROFILEW E B S I T E . S O C I A L M E D I A . O N L I N E R E V I E W S .

Your website is like a digital storefront. Before any company writes your insurance, they will almost certainly review your website and your social media accounts. Make sure your digital profiles are sparking—and consistent with any information you include in your insurance application. Showcase your followers and your growing fan base. Invite customers to "talk up" your opening, along with your uniquely amazing beers.

As your business grows, remember that negative reviews on Yelp (or similar sites) could actually affect a carrier's willingness to rewrite your policy. Try to respond to criticisms about your service, offerings, or appearance with thoughtful and timely clarifications. If you were in the wrong, explain how you are working to resolve raised issues.

2

Fifty-five percent of underwriters are "very

effectively" using social networking and crowd sourcing to gather risk information. As of 2013, most others were in the

process of implementing or improving their use of

this technology.

SOURCE: THE NORTH AMERICAN COMMERCIAL

UNDERWRITING SURVEY, 2013

YOUR OPERATIONM I C R O B R E W E R Y V S . B R E W P U B

Many carriers that offer craft brewery insurance do so with very specific parameters regarding who your customers are and when they come to visit your establishment. As you probably know, operational variables like whether or not you have a tasting room will affect your rates. Whether you’re open standard business hours or attracting clientele after dark (more like a bar) also matters.

The more your brewery mirrors a bar/nightclub (versus a manufacturing facility), the more obstacles you may encounter. This is not to say that staying open late, hosting trivia nights, drop-in yoga classes, or inviting guests to enjoy live music and karaoke is a bad business decision. Again though, it may affect the number of carriers who are interested in quoting your policy.

3

75%

25%

C R A F T B E E R I N D U S T R Y

M A R K E T S E G M E N T S

S O U R C E : B R E W E R S

A S S O C I A T I O N

Microbrewery

Brewpub

A restaurant-brewery that sells 25% or more

of its beer on site. The beer is brewed

primarily for sale in the restaurant and bar.

A brewery that produces fewer than 15,000

barrels per year, with 75% or more of its beer

sold off site.

M A N U F A C T U R I N G V S . E N T E R T A I N I N G : T H E C A R R I E R P E R S P E C T I V E

In its Appetite Guide for Commercial Insurance, EMC Insurance lists "Beer Manufacturing...in Bottles or Can" as a "desirable class of business [that is] written regularly." By contrast, the guide lists "Bars & Taverns" as business only to be considered on a "risk by risk basis." Operations with dance floors, entertainment, or cover charges would not be eligible for EMC programs.

YOUR SPACES H A R I N G , R E N T I N G , & E X P A N D I N G P R O P E R T Y

In recent years, nanobreweries have exploded onto the craft brewery scene, allowing new labels to enter the market with minimal startup costs. But what are the insurance implications of sharing brewery equipment, storage space, and taps? The answers should factor into your planning.

Even if your commercial space is entirely your own, important property insurance questions need to be answered before you sign any contracts or leases. Building ownership may require you as the tenant to obtain insurance to cover your contents. The figure they require may be misaligned or inadequate. Meanwhile, the landlord's property insurance may be insufficient in terms of casualty or liability limits. Having your lawyer review said terms won't necessarily help you avoid problems down the line, as lawyers aren't equipped to match your risk profile with appropriate coverage levels.

Finally, if you're remodeling a space to make it fit your brewery's needs, builder's risk insurance is an essential (but often overlooked) form of protection. Gaps between the construction and operational phases of your business can spell major trouble.

Your best bet is to get in touch with an insurance agency that specializes in breweries, while you are in the process of vetting possible locations. A agent with experience in the craft brewing industry can help you understand how different setups might affect your insurance needs, and work with you to evaluate contract clauses when you're reviewing the fine print.

4

Equipment breakdown is the #1 cause of insurance claims among breweries. Whether it’s a boiler breakdown, a power surge in the cold room, or a glycol system malfunction, this type of loss event often closes craft breweries for weeks and/or spoils thousands of dollars worth of product. Ask your insurance agent about specialty coverages for tank collapse, tank leakage, off-premise utility service interruption, and spoilage.

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YOUR TOOLSE Q U I P M E N T & P R O V I D E R S

You may be planning to spend a lot for your fermenters, BBT tanks, and the like. But you shouldn't plan to pay for them twice. Have your brewery insurance agent review major sales agreements before purchasing (and shipping) pricey equipment, whether it's arriving new from overseas or purchased as used equipment from some other state. You'll want to be sure that you're covered if the freightliner loses your cargo somewhere in the Pacific, if your stainless screens arrive rusted, or if your shipment of glass bottles arrives in shards.

Contracts also come into play when you're working with canning or bottling contractors. Suppose one of these third-parties damages a batch of beer, which later needs to be recalled. You'll want to know that they have sufficient coverage to rectify the issue. You'll also want to be clear on when/how their policies pick up the loss in place of yours.

5

In international shipping, the acronym FOB means "free on board." For domestic shipping within the United States, it may also be short for "freight on board," but that doesn't affect the legal meaning. Used in a shipping agreement, FOB identifies who pays to ship goods and who owns them while they're in transit. 

SOURCE: small business chronicle

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YOUR FOODK I T C H E N S & F O O D T R U C K S

Some insurance companies don’t have an appetite (pun intended) for craft breweries that maintain a full kitchen with sit-down table service. Snacks that guests pick up at a counter (e.g. warm pretzels, charcuterie boards, etc.) may be okay. What’s this delineation all about?

Mostly it goes back to that distinction between manufacturing and entertaining. Brewpubs invite guests to linger longer and (potentially) consume more alcohol. This expands a brewer's risk profile, in addition to the risks posed by the kitchen operation itself.

If you want to avoid the risks of a kitchen, allowing food trucks to operate on your property is an easy way to rein in insurance costs. But craft brewery owners should still be mindful of vicarious liability. Vicarious liability exists when you allow outside vendors to operate on your premises. Implicitly, you are endorsing these vendors, and so if they cause a case of food poisoning or collide with one of your patrons, you could be held liable for damages.

The solution is to require a certificate of insurance (General liability, workers' compensation, and auto liability). Ask your insurance agent to advise you on appropriate limits for each policy. The food truck's certificate should name your brewery as an Additional Insured. Should something happen as a result of the vendor’s negligence, you would then be afforded coverage under their policy if there was ever a lawsuit seeking damages. Your policy would respond only in the case of negligence on the part of you and/or your business.

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YOUR DISTRIBUTIONS E L F D I S T R I B U T I O N V S .   O U T S O U R C I N G

Product distribution mode affects insurance because it involves vehicles, drivers, warehousing, and because it has the potential to complicate recall efforts. The Brewers Association offers many resources that outline the pros and cons of self-distribution. From an insurance perspective, self-distributing may increase your rate, after accounting for the additional personnel (drivers) and the fleet of vehicles required. Still, for many small and startup breweries, self-distribution is more cost-effective in the long run, given how difficult it can be to terminate a brewer/distributor agreement that ultimately sours.

7

P R O D U C T I O N B R E W E R I E S A N S W E R I N G " Y E S "

S O U R C E : B R E W E R S A S S O C I A T I O N , B R E W E R Y O P E R A T I O N S B E N C H M A R K I N G S U R V E Y , 2 0 1 6

Here's how craft brewers in different markets and size ranges (bbls/year) answered this question from BA's bi-annual survey.

76%

24%

76%

56%

44%

46%

54%

32%

68%

32%

B R E W P U B S A N S W E R I N G " Y E S "

15%

85%

17%

83%

Do you self distribute?

15% 17%

56% 46%

1 - 1 , 0 0 0 B B L S 1 , 0 0 0 - 5 , 0 0 0 B B L S 5 , 0 0 0 - 1 5 , 0 0 0 B B L S 1 5 , 0 0 0 - 6 0 , 0 0 0 B B L S

1 - 1 , 0 0 0 B B L S 1 , 0 0 0 + B B L S

YOUR SAFETY PLANP O L I C I E S &   C O M M U N I C A T I O N

Your insurance agent should be actively selling your business to prospective carriers by presenting you in a thorough, positive way. Why? Because underwriters are the gatekeepers to the best insurance rates and terms. Underwriters look at hundreds of applications every month. If your application looks only so-so (or worse), don’t be surprised if you find yourself with less than ideal pricing.

Safety is a key piece of your brewery’s “narrative” (i.e. your business story). Work together with your insurance partners to tell it well. Now is the time to review basic safety—and beyond—with your agent. What will you do to mitigate loss events? What kinds of programs might you be willing to implement? Be sure to choose an agent who can advise you on risk management best practices, and also communicate these practices to underwriters.

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0

2

4

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2010 2011 2012 2013 2014 2015 2016

As the number of craft breweries grows, brewery injuries reported to the Bureau of Labor Statistics (BLS) have also been on the rise. Totals increased from 160 reports in 2011 to 530 in 2014. Sprains and strains, chemical burns, along with bruises and contusions remain the most common injuries, accounting for half of all cases reported to BLS in 2014.

SOURCE: all about beer magazine, 1/8/16

This chart illustrates the number of non-fatal workplace injuries per 100 full-time brewery employees, nationwide. If your brewery has more loss events/insurance claims than other breweries (of a similar size), your workers' compensation rates will likely go up. 

SOURCE: 

u.s. bureau of labor statistics

NEXT STEPSC R A F T Y O U R I N S U R A N C E P L A N

"C&S has gone above and beyond in terms of customer service, by being responsive to questions and making sure all our coverages were in line... [They] stopped in after hours, took the time to explain the options and the advantages... and put together a VERY competitive quote for our insurance program."

info@candsins.com | 508.339.2951 | www.candsins.com

matt menard

big iron brewing

Why choose C&S Insurance to manage your brewery's insurance program? There are at least three big reasons:

we understand your business

we're a family operation, too

our service team stands beside you, all year long

Craft brewing is a core focus here at C&S. We are proud members of the Massachusetts Brewers Guild and the Brewers Association. Our team works to stay current on the trends and issues affecting local brewers, and we have a track record of success in the industry.

"As a small business with limited time and resources, we often rely on the advice of outside experts. Time and again, C&S has proven worthy of that trust..."

tracey cinelli

skyroc brewery

While other agents show up once a year (at renewal time), we engage proactively to ensure you're getting the most from our mid-term reviews, loss control services, and risk management strategy.

Much like yours, our company is rooted in family. As second- generation owners, we’re not out to make a name for ourselves. Instead, we’re driven to provide exceptional service and cultivate long-term relationships with a specific kind of company—companies that can truly benefit from what we do. So give us a call! Let's toast to your new brewery's success.