Earthquake Update

Insurance Update

The cost of the Kaikoura earthquake.

INSURANCE EXPERTS have estimated insured winery losses of around $200 to $250 million from November’s Kaikoura earthquake

ICIB Senior Broker Daniel Szegota says the estimate is mainly based on damage to tank farm infrastructure and barrelled or finished stock, and is substantially higher than the 2013 Seddon earthquake. “This estimate excludes Business Interruption losses, as the impact of any inability to process Vintage 2017 is not yet known.”

Daniel says insured losses have also increased due to the relatively recent reduction of earthquake excesses to 2.5%, having been at 5% after the 2013 event.

The current issue of concern is the impact of processing availability for the upcoming vintage, he says. “Many wineries were proactive and now have temporary processing solutions available, with insurers making progress payments until the final costs of permanent repairs or replacements are known.”

The insured losses for an inability to process the vintage are hard to quantify at this stage, with vintage size an unknown and varying policy wordings when it comes to how Business Interruption claims trigger, says Dan. “These costs will become more apparent in the coming months. However, initial indications are good, due to a pro-active approach from the outset by the industry, supporting industries and insurers alike.”

Dan says the current insured losses are manageable and the impact is likely to be on underwriting controls only, rather than those insurers that can currently underwrite wineries moving away from the industry. “Earthquake pricing may increase marginally but a more likely scenario is a return to 5% site excesses.”

That said, the two large events within three years mean insurers will be expecting a proactive approach from the industry and tank manufacturers alike to help mitigate the main types of losses in the future, says Dan. “Should a similar event occur again in the foreseeable future, with a similar outcome, underwriting controls and even the availability of insurance could become a bigger issue.”

Daniel Szegota

Earthquake Economics - Marlborough District Council Strategic Planning and Economic Development Manager Neil Henry:

How much is the wine industry worth to Marlborough’s economy?

It is worth $1.5 billion per annum, based on Marlborough’s 75% share of New Zealand’s wine industry. There are 2,240 wine jobs in Marlborough, about 10% of Marlborough’s total employment (NZIER 2015).

What are the short-term implications of the earthquake in Marlborough, as you see them?

The cost of repairing damaged tanks, and the potential impact on the 2017 vintage if there is a shortage of capacity. However, there will be a boost for those Marlborough companies involved in the repair. The industry has told us it can manage any issues, which is encouraging.

Could this impact on the economic development of the region?

The grapes must be grown here, but it is too early to say whether there will be a long-term impact on the winery side. A significant portion of the value of wine to our region is in its manufacturing. Many Marlborough businesses are connected to the wine industry in one way or another, and it has strong links to the visitor economy. The industry has invested heavily in Marlborough’s winery infrastructure, as they recognise the value in making wine here - from a quality, cost and brand perspective. Those values remain post-quake.

How can the wine industry and local/ central Government counter this?

The amazing success of the wine industry in Marlborough has been built on a strong partnership between the industry and local and central Government over a long period of time. The recent $10 million investment into the Research Institute of Viticulture and Oenology is the latest example of this enduring partnership. We all need to keep reinforcing the many benefits of keeping Marlborough at the centre of the New Zealand wine industry.

Steel Works

Earthquake repairs likely to take at least 12 months.

A TANK manufacturer has tripled the number of steelworkers it employs in Marlborough, following the 7.8 magnitude earthquake in November. Crown Sheetmetal currently has 65 staff in Blenheim, compared to its standard 20, having drawn in contractors from around the country, including many from the dairy industry.

General Manager Andrew Horton says the damage to wineries has required all hands on deck in order to repair, build and fit tanks before the 2017 vintage. “Finding accommodation has been a big challenge, but a lot of the wineries have helped us out with homes they use for vintage staff…And of course they have been very keen to have the tradesmen there to have their wineries back on track.”

Crown is also working with stainless steel workshops in the North and South Islands to manufacture 36 standardised 140,000-litre winery tanks and another 60 tanks of 60,000l, all of which utilise the hold-down Onguard system. The industry is also working together to create enough steel band-aids for short terms fixes, to get the industry through vintage.

A survey done by New Zealand Winegrowers late last year indicated that 20% of the region’s tanks were damaged or destroyed by the earthquake. Andrew says the tank builds are running to schedule and fitting will begin soon.

The greater immediate demand now is for onsite repairs. “We have a number of extra staff on site doing repair work and some of that repair work is a patch up job to get them through harvest. We’ll come back before the following harvest to do a proper repair.” He says the heavy workload for stainless steel companies is likely to remain for at least 12 months.

Image by Jim Tannock

Moving forward: Toll Marlborough Manager Callum Anderson

How did the November earthquake affect wine industry clients?

In terms of time, the national transport network experienced reasonably significant disruption for a number of weeks post-earthquake, as schedules were adjusted and the right amount of equipment put in place. This was exacerbated by the fact that December is a peak month for freight volume due to Christmas trading and holiday season.

Transport companies have applied earthquake levies to recover some of the extra costs incurred to keep the network operational, and some of these have been up to 30% on various routes. We saw transit times increase by two to three days to some locations, which caused frustration. However, for the most part people understood the constraints we were all working with for a short period of time. Transit times have settled into more normal patterns.

How much wine industry freight does Toll move and has this amount changed because of the earthquake?

Wine is a significant part of Toll’s freight mix outbound from Marlborough. What we’ve experienced is a larger amount of wine moving in bulk to various storage locations around the country, and to bottling. What makes the wine industry unique as far as transport goes is that for the most part tanks need to be empty by mid-March for the new vintage. So we generally experience peak volumes in Jan/Feb/Mar each year. The earthquake essentially bought this peak forward by two months.

Will the earthquake influence vintage transport?

Yes, it will. The earthquake has wide-ranging impacts - for example, with more roading contractor crews based in Marlborough, there is pressure on accommodation during harvest, and on rental equipment (trucks). The biggest impact is around grape supply from Waipara. Journey times from Waipara to Blenheim are obviously longer via Lewis Pass, and with fluid loads, this becomes a real focus area.

As a region, we also need to consider the increased level of risk generated by higher traffic flows through the Wairau Valley. Coupled with harvest trucks turning in and out of tight vineyard gates on the main highway at night, we are faced with a new set of hazards to manage.