Scotch Whisky is vital to the entire Scottish and UK economies. According to the Scotch Whisky Association the industry generated £5 billion in value last year alone, supporting more than 40,000 jobs and exporting £4 billion of Scotch annually to almost 200 markets. Exports of Single malt Scotch whisky also topped £1bn worth for the first time in 2016.
Fourteen new distilleries have opened since 2013 and a further eight are expected to start producing this year. In addition, there are forty distilleries at planning and development stage so the future for the industry remains strong.
The whisky industry poses its own unique challenges due to the fact that whisky, after it has been distilled, must mature for longer periods – sometimes in excess of fifteen years.
In terms of the insurance impact of this lengthy distillation and maturation process, it is both impractical and costly to insure for this entire period. In addition to standard material damage cover, it is advisable to insure the product on a maturation basis that will cover both market value at the time of a potential loss and the loss of future matured value.
Put simply, if a warehouse stocked with whisky, which is set to mature for ten years, was destroyed by fire at the five-year point, the fire risk insurance policy would pay the five-year-old-whisky market value as at the date of the fire. The maturation wording would then pay the difference between that amount and the value of its intended selling price had it matured as a ten-year-old whisky. Thereby between the two sections, the distiller would be fully indemnified in respect of the loss of whisky in-store.
There is also a need to include a loss of output option in terms of business interruption should there be an insured event such as fire at the distillery. This allows for a claim to be based on the gross profit loss arising from the reduction in output rather than a reduction in turnover. This is because the latter would not arise until the relevant maturity period.
It’s important that all distillery owners prioritise a ‘health check’ of their insurances. We at Bruce Stevenson Insurance Brokers offer this service free gratis.