Across the country, supply chain challenges, labor shortages and rising gasoline prices have contributed to a perfect storm hitting consumers and business owners right in their wallets. Another contributing factor, inflation, is now at the highest it has been in 40 years at 8.5 percent annually according to the U.S. Bureau of Labor Statistics.
While brewery owners are seeing the realities of these many economic factors hit their revenue and profit margins, they also need to consider what these rising costs could mean should their business sustain damage, equipment breakdown or worse. For many, the reality of an insurance loss in this economic environment will likely illustrate how their business was not adequately insured to its current value, leaving the balance of rebuild/repair costs on the brewery owner.
These economic difficulties are likely to continue unabated for some time. That means labor shortages, undertrained staff and frustrations obtaining critical materials like barley, cans and other must-have materials are likely to be longer-term business realities. All of these staffing and supply limitations can increase the likelihood of something going wrong, and consequently result in an insurance claim.
Fortunately, brewery owners can act now to protect their operations and ensure their business is adequately insured to its current value should the worst happen in this uncertain environment.
A perfect storm
With the price of aluminum and stainless steel continuing to rapidly rise, breweries have faced rising operational expenses in recent months. As the scarcity of these metals increases, replacement costs have soared. This makes obtaining these materials not only costly but a real and present risk if they can’t be acquired in a timely manner, especially in the event of a breakdown of equipment or damage to other brewery infrastructure.
But it’s not just aluminum and steel issues challenging breweries.
Business owners have also had to navigate difficulties securing barley for the brewing process due to the drought in 2021. Working through reduced product availability, canning difficulties and subsequent equipment breakdowns, many breweries across the nation have been forced to slow production and are now at risk of major losses should they suffer any further business disruption.
One risk exposure all too common in the brewery industry is a brew kettle explosion. They can result from a number of factors including an inexperienced staff handling brew kettle operations, an employee looking to cut corners to head out early for the night or through a simple oversight.
No matter what the cause – whether preventable or not – brewery owners can suffer major losses from brew kettle explosions. Often when such an event occurs, it’s not just the brew kettle that’s damaged. Employees can be injured and significant, costly structural damage to the building itself can result.
In addition to following best practices for risk mitigation to avoid brew kettle explosions, brewery owners will want to make sure they’ve had their insurance coverage reassessed in recent months. A brewery that was insured two or three years ago for $4 million could now need $9 million worth of coverage or more to account for rising material and rebuild costs. When an insurance policy only covers $4 million worth of damage, but the actual repair/rebuild costs is $9 million, the brewery owner will be left to cover the difference out of pocket.
Securing your future
Brewery owners have the opportunity to reassess their coverage and provide a more accurate estimate of what replacement costs might be in the event of a brew kettle explosion or any other loss. In the current and rapidly changing economic environment, breweries need to be adequately protected with a comprehensive insurance policy that has a current reassessment of coverage, taking into account rising inventory values, supply delays, as well as rising rebuild costs.
As the brewery industry continues to navigate rising costs, working with an insurer who specializes in breweries to ensure their property is insured to value can prove essential. Breweries will want an insurance partner who is familiar with brewery products, supplies and facilities as well as the costs to repair, replace or rebuild should it ever be necessary. Taking the time today to work with the brewery’s insurance agent can help to ensure protection of the business no matter what challenges tomorrow brings.
Paul Martinez is program manager and insurance brewmaster for Brewery PAK Insurance Program. Martinez has 20+ years of commercial insurance experience and 10 years of experience underwriting breweries.