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The challenges of craft-style microdistilleries for commercial underwriters

By J. Steven Cruz  |  June 27, 2018

Microdistilleries and insurance risk

Recently, we’ve seen the rise of a new set of loss exposures in the alcohol service industry due to the proliferation of craft-style microdistilleries. In fact, an article in the National Fire Protection Association (NFPA) March/April 2018 NFPA Journal, “Small Scale, High Proof,” detailed one critical aspect—the fire prevention challenges in small craft-style distilleries that are popping up around the country.

Farm-to-flask distillery operations

Craft-style or microdistilleries are typically boutique or “farm to flask” operations that produce small, single-batch, producer-beverage-grade brews. They’re often privately branded and offer special events on the property, such as on-site tasting and tours of the facility.

These types of distillery operations have their own particular exposures, hazards, and risks that insurers may need to consider when offering coverage. That’s based on the experiences Verisk field analysts are having when surveying and inspecting these sites.

On-site surveys can identify exposures

On-site surveys help identify exposures caused by the unique operational and management functions of the distilleries. Field should be knowledgeable in such things as the different requirements for electrical systems, the difference between the “hot” and “cold” sides of the brewing process, and how underwriting is affected by the fact that many of these operations are in nontraditional manufacturing properties or locations—like mixed-use buildings outside of industrial areas.

To provide insurers these important details and many more, our field analysts prepare a detailed, granular survey report that encompasses a broad spectrum of factors about the distillery. The report covers operations and structure characteristics, of course, but it goes beyond them to include owner experience, employee information, analysis of equipment, security measures, surrounding environment, crime risks, many unique details of the specific operation/location, and much more.

Conditions that increase fire risk

One critical area of focus, as the NFPA article emphasizes, is the conditions that increase the risk for fire and the factors that affect how firefighters respond to them. A concentration on fire risk is essential because fire prevention and firefighting are significant risk assessment points for underwriters deciding whether to cover a risk and how to price it.

Some of the unique fire challenges of craft-style and microdistilleries include:

  • storage of large quantities of flammable liquids
  • use of pressure vessels, such as boilers, that contain highly flammable concentrations of alcohol
  • flammable liquids, such as alcohol in storage, that can evaporate into the air (referred to as the “devil’s cut”)
  • local fire protection codes that may not adequately address small-craft distillers
  • presence of combustible dust from milling
  • steam jackets/piping and electrical hazards
  • inexperienced operators (these small businesses are often started by “amateur” producers)

In the NFPA article, the authors discuss several incidents that have occurred in the last eight years to illustrate the risks that these small distillers present. The article outlines efforts underway to revise codes and standards related to such operations. While the NFPA Journal is a members-only publication, you can access the March/April 2018 issue in the “Dispatches Section” of the NFPA Journal online.

Verisk survey reports expand the information we cover beyond fire risk and include additional property considerations, liability, and workers’ compensation. Verisk’s Engineering and Safety Service (E&S™) works with our customers to keep them informed on these and many other issues related to loss control and offers client handouts on many topics.


J. Steven Cruz is vice president for commercial property, Verisk – insurance solutions. You can contact him at jscruz@verisk.com for more information about Verisk’s Commercial Lines field analysts, survey services, and survey reports.