Growth of Craft Beer Industry Brews Plenty of Opportunity for Insurance Professionals

Industry’s Sophistication Rises, And So Do the Risks

The beer industry, like many others, has been impacted by the economy with one notable exception: craft brewers. The microbrewery, brew pub and brewery industries have actually seen sales jump in the last few years while the big three beer companies, Anheiser-Busch, Miller and Coors, have taken a sales hit.

Paul Gatza, director of the Brewer’s Association says that the industry continues to grow year over year.

“Thirty years ago there were 89 brewers in the United States, and now there are 1,600,” Gatza said. “Things have exploded on the brewing scene in the last 30 years.”

The brewing industry’s growth has opened up new opportunities for insurance professionals interested in this segment. But like with any niche market, special attention must be given to some unique exposures.

Many breweries turn to a restaurant policy for their coverage, however, breweries’ insurance needs span beyond the typical restaurant risk, says Peter Whalen, president and owner of Northampton, Mass.-based Whalen Insurance Agency, which writes breweries through its exclusive partnership with The Hartford.

“There are still a lot of carriers that are not as familiar with breweries as they are with restaurants,” Whalen says. “I see a lot of people who have a brewpub who open a manufacturer- or vice versa. The accounts are getting more complicated because they aren’t just a brewpub or a microbrewery.”

While the overall beer industry’s size declined slightly last year, the craft brewing segment continues to grow.

The Brewer’s Association (www.brewersassociation.org), says the craft brewing industry grew by 7.2 percent in volume in 2009 and 10.3 percent in dollars. That is up from 5.9 percent in volume and 10.1 percent in dollars in 2008. In addition, 1,595 breweries operated for some or all of 2009, the highest total since the Prohibition era, and craft brewers sold an estimated 9,115,635 barrels of beer in 2009, which was up from 8,501,713 in 2008.

The sophistication level of craft brewers has grown as well. “The craft brewing industry has hit the tipping point and it is not just an obscure bunch of beer nerds out there anymore,” Whalen says. “Its mainstream and its widely accepted.”

Whalen says that most craft brewers have plans to expand further this year. “This industry grew by almost 10 percent last year. How many industries are growing right now? Almost everyone I talked to said they were expanding.”

Specialty Coverage

The Brewer’s Association places craft brewing into four categories: microbrewery, brewpub, regional craft breweries and contract brewing companies. A microbrewery produces less than 15,000 barrels of beer per year with 75 percent or more of its beer sold off site. A brewpub is a restaurant-brewery that sells 25 percent or more of its beer on site. The beer is brewed primarily for sale in the restaurant and bar.

Brewery exposures range from brewing machinery, tasting rooms, food, tours, and many other things. If insureds do not buy insurance coverage from a brewery package, agents may have to mix and match policies to get what they need, which can be more expensive, Whalen says.

The Whalen Agency has been writing brewery insurance since 1986 and began its partnership with The Hartford back in 2008. So far, the Whalen Agency’s program is the only brewery program available nationwide. The Hartford-backed coverage includes property, general liability, liquor liability, equipment breakdown, workers’ compensation, and auto. One program advantage is equipment breakdown coverage for breweries, says Whalen, where coverage doesn’t cease once the equipment breaks down. Instead coverage extends until the brewery is back online and selling its product. Product recall is another coverage option available under the program, which can be very important for breweries.

Whalen says about 15 percent of his agency’s revenue comes from brewery business. The East and West Coasts are where the majority of his business comes from, but the Midwest, namely Chicago, is also up and coming.

The Ballard Agency, located in Bellevue, Wash., also specializes in brew pubs, although the agency doesn’t have a specific insurance program.

The Ballard Agency began experimenting with writing this segment about two years ago and has gained momentum quickly, says Chris Ballard, president of The Ballard Agency. Ballard said he used to brew beer himself and that is partly what attracted him to writing the segment.

Ballard says his knowledge and love for the brewing industry gives him a unique advantage over competitors. “We are still doing our best to make our name as the experts in this industry and we see a great opportunity for growth because we are doing things different than our competitors,” Ballard says. “I know the difference between types of hops and when brewers are talking in their own unique language, I understand it.”

The Ballard Agency’s brewery risk concentration mostly lies in the Pacific Northwest. While the agency is currently licensed in 12 western states, including Alaska, Washington, Oregon, California, Arizona, Nevada and Colorado, it will consider other states if the right opportunity arises.

Ballard says the agency has been marketing its expertise and passion of the industry through its Web site, www.beerinsurance.com as well as a Facebook page, both of which have resulted in many inquiries from start-ups looking for coverage.

“Breweries are a very fast growing industry in the Pacific Northwest and there are tons of local microbreweries here,” says Ballard. “I probably get a call from a new start-up brewery once a week.”

Ballard believes his expertise in the area gives the company an advantage when it comes to making sure breweries have the proper coverage.

“We carefully interview all of our clients and really dig in deep so we can apply all the bells and whistles from the different products for their needs,” he says “Not everyone needs the same thing.”

The Ballard Agency writes all different types of breweries but concentrates on microbreweries with a tasting room on premises serving limited food. Coverage can include commercial general liability, liquor liability, employment practices liability, standard property coverages, business interruption and mechanical breakdown. An additional special endorsement for off-premises utility services is available as well as spoilage for larger brewers. Ballard works with a number of different carriers, including The Hartford, Travelers, Safeco and Oregon Mutual.

Pricing and Availability

Pricing for breweries remains competitive, similar to the rest of the commercial lines insurance market.

“The only place where it can get a little tight with capacity is when you are dealing with larger accounts that need very high excess liability limits over liquor liability or property limits,” Ballard says. “But even that isn’t that difficult.”

The claims frequency and loss experience are typically pretty good, says Whalen, with the most frequent claims he sees being trips and falls.

Ballard finds the frequency of claims is low but the severity can be high if there is a catastrophic loss such as fire or a large event at a brewery that leads to disposal or recall of the product, such as bacteria getting into the beer. Events such as these make product recall coverage more important because of the response services that come with that coverage.

“If you are a small brewery and word gets around you have tainted beer, it can kill your business,” Ballard adds.

The Brewer’s Association’s Gatza says that agents looking to write this business should know the details of how the brewery business operates.

“Breweries are different than other places,” he says. “Part of the buildings are industrial facilities so understanding the process and where the risks are is very important,” he adds.

Whalen believes those risks are worth it. “This class is a lot of fun,” he says. “It’s always nice to go have a great beer in a place that makes it and that you insure.”