Insurance for older structures can be tricky, so if your operation is currently located in one of these structures or you are just thinking about it, take care to review your brewery insurance and distillery insurance. I am seeing more old structures revitalized in downtown areas for breweries and distilleries. The appeal is very obvious. Once renovated, these structures can offer size, expansion capabilities and ambiance to any brewer or distiller. The construction is often solid and well made. Renovations to the interior, roof, electric and plumbing can be extensive but the final product can be impressive.
So what should you look for when purchasing insurance for older, renovated structures? Typical brewery insurance and distillery insurance buying decisions still apply. Do you want a comprehensive insurance policy that covers all kinds of perils or are you OK with a minimalist approach. Does the deductible make sense? Yes, property insurance is cheaper with higher deductibles but can you pay the higher deductible? Would you want to?
Brewery insurance and distillery insurance property policies written on a replacement cost basis, new for old with like kind and quality need careful attention. These policies typically will require a minimum limit of insurance that is a percentage of the actual replacement cost. For example, a building built in 1900 that cost $250,000 to purchase might cost $1,500,000 to replace from the ground up. Now let’s say you carry a limit of insurance for replacement cost at $650,000 because you put in $300,000 worth of improvements. Somewhere in your insurance paperwork your insurance company requires you to carry 80% (aka Coinsurance) of the full replacement (1.5) which would equal $1,200,000.
You have a significant loss of $300,000 and get a statement of loss from your insurer that says they will pay $162,500, less your deductible. What happen? How can that be? It can be because the limit of insurance carried did not match the terms of the contract. Estimating costs of older structures is not an exact science but some science is better than no science. Alternative policy valuation methods can also be used to take the sting out of a situation like this one. They come with trade offs but like anything else, buying insurance can mean trade offs between coverage and premium. Everyone has a budget for insurance, it is overhead. Using it wisely and knowing where you are taking on risk is an important part of the process.