Napa Valley wineries, seeking insurance relief, show steps to lessen wildfire risks

ST. HELENA — In 2017, Chappellet Winery spent $200,000 for $80 million in insurance coverage. After the North Bay wildfires of October 2017, its premium rose to $250,000 for $50 million in coverage. Now, in the aftermath of the 2020 Napa County wildfires that ravaged the Napa Valley, the winery pays $1.2 million for just $25 million of protection.

From 2017 to 2020, wildfires burned through more than half of Napa County's land area and destroyed more than 1,500 structures. The valley's fire risk has had major repercussions for wineries' — and all North Bay landowners' — ability to buy affordable insurance.

As Chappellet's premiums were climbing, the owners of the winery located on Pritchard Hill in St. Helena worked with their neighbors to lessen fire risks specific to their property. Chappellet's president, Cyril Chappellet, thinks those efforts have been effective, yet the premiums have not come down.

"It doesn't work in the long term. In the long term, it's not sustainable to keep these rates going up like this," said Chappellet, who said the high cost of insurance along with the costs for fire mitigation threaten to "kill" the winery's cash flow. "It's a real challenge."

Last week, Chappellet was one of more than a dozen speakers at the Estate Yountville for the Wildfire Resiliency Summit hosted by Galway Holdings, a financial services and insurance distribution company.

The conference brought together winery and insurance representatives and wildfire experts to discuss the region's wildfire threats, and to brainstorm ways to restore insurability to a Napa Valley wine industry that has increasingly struggled to find affordable insurance since 2017.

"There was nobody leading any industry initiatives around bringing insurance companies, reinsurers, risk modelers, mitigation experts and the winery owners — no one was bringing them together," said John Hahn, executive chairman of Galway Holdings.

"Everybody right now is just individually oriented, so each winery owner hires a broker to represent them, they go to insurance companies (and) they do the best they can do," Hahn said at the March 9 event. "They come back with typically, now, a lousy product at a lousy price. So the transactional wheel doesn't work. We're trying to create a different concentrative wheel that's got a lot more impact, and also lot more data analytics associated with it, so better decisions can be made."

Patrick Gallagher, head of analytics at EPIC Insurance, spoke about the high premiums wineries paid from 2017 to 2022. In that period, he said, there was $371 million in insured winery wildfire claims in the North Coast AVA, a region that encompasses grape-growing areas in six counties including Napa and Sonoma.

According to Gallagher, no wineries in that region filed wildfire claims in 2021 or 2022. An analysis by EPIC Insurance brokers estimates those wineries paid $275 million in premiums last year. And while information is not available for 2021, according to Gallagher, similarly to 2022, 2021 also had elevated rates compared to 2017 and prior.

This data suggests insurers would have recouped losses over the six years given the high premiums paid in the past two years, when no regional wineries filed wildfire claims.

"The insurers may be sitting on the sidelines because they're conflating risk with all properties in California," said Gallagher. "But Napa wineries have invested more in protection and they've suffered higher rate increases than has the broader California wildfire market relative to their historical claims."

On Friday, insurance company representatives boarded shuttle buses and headed to Chappellet Winery and Harlan Estate in Oakville to tour their properties and to learn about the wineries' fire mitigation steps, which include field reduction, vegetation treatment, emergency egress and dozer lines.

Ralph Salce, a vice president at Tokio Marine America, an insurance and risk management group, said that taking fire risk into consideration when deciding whether to insure wineries is critical to what they do. But after the presentations he saw at the summit, he said current approaches may be too broad.

"When you're underwriting back in the office, you don't see these things, physically seeing what's actually going on, on the ground," said Salce. "And I think this opportunity gives you a real sense of clearing up brush (and what it means) to take fuel away from the area or stuff like that. It's very abstract but when you see it on the ground, you realize that makes a lot of sense. This actually is improving the risk."

After learning about progress wineries like Chappellet are making to lessen their fire risk, Salce said he planned to return to his base in Jersey City, New Jersey to share some findings that are not obvious to underwriters weighing such risks across the country.

"Being here, kind of seeing exactly what's being done on the ground, is extremely helpful, and it (gives) a real understanding to what's going on as opposed to them telling us, 'This is what we're doing,'" said Salce.

Stu Smith, founder of Smith-Madrone winery in St. Helena, attended the summit hoping it would give insurance agents the proper context to work toward a solution to the insurance cost problem he and his peers have endured in recent years.

"They make money off of us. But also, we need them. So to come together in a synergistic way is really important," added Smith. "Ultimately, what we're hoping is the insurance companies will look at our properties and evaluate them based on risk and not ZIP code."