Oenophiles and insurance: Protecting your wine investment

Got a swanky selection of wines on the go in your cellar? You might need to think about protecting them

Over the last decade the fine wine market has nearly quadrupled in size from $92 million in 2000 to $478 million last year.

Joining the established oenophiles were more wealthy individuals, who saw wine as a luxury trophy good and drove up the prices for rarer, sought after specimens. And as the prices rose, more investors speculated and enjoyed healthy returns, particularly as wine seemed a safer place to put money than other markets.

A big factor in all this has been the newly acquired taste for wine in the east, led by China, Japan and Hong Kong.

The price increases haven’t been level across the board, and the impressive headline numbers are driven by appreciation of first growth clarets, such as Chateau Lafite Rothschild, as well as on some niche offerings, like Petrus. 

Their price rise has been out of proportion to other wines, which may taste as good but don’t have the exclusivity of a Bordeaux designation of ‘first growth’.

When it comes to protecting your wine, there are a number of specialist requirements.

For most, it will be adequately covered by a high net worth household policy. But if you have something exceptional, then of course it is worth getting a specialist policy.

Wine can be insured under a fine art all risks policy.

This means that your wine is covered for physical loss and damage, which includes theft or accident and damage from fire or flood. This is handy if you can be clumsy around all those glass bottles (and accidents do happen), but also offers some protection for wine as an investment.  

For example, a flood can do irreparable damage to the labels, which won’t affect the wine in your glass, but could seriously affect its market value.

In the case that something does happen to the labels, it may be possible to get the chateaux to reprint them. However, fraud is a big issue for the wine market and so they are often reluctant. 

It has always been difficult to confirm a wine’s identity, and as prices rise there is more to gain for counterfeiters. Your standard wine policy won’t cover your losses if it turns out you do have fakes in your cellar, so specific coverage for counterfeits maybe something else you wish to consider, particularly if you are a connoisseur of older vintages.

 As a basic rule, the older a wine is, the harder it is to verify its provenance.

This is particularly the case for pre-1945 wine, where we’re up against the lack of consistency in bottles and labelling, inadequate record-keeping and the fact that very few people will have tasted it.  

They are also the most tempting to counterfeiters, as the prices they command are so high.

There have been a number of high profile wine frauds, for example the Thomas Jefferson bottles, which supposedly belonged to the president. They didn’t, and on further investigation it became clear that his initials had been applied by power tool to the bottle a lot later than the eighteenth century.

On a larger scale, on 8th March this year, Rudy Kurniawan was arrested in L.A. charged with multiple counts of fraud related to fake wines. His activities are suspected to be extensive (so much so that he is looking at 80 years in prison if found guilty), and it is also alleged that millions of pounds worth of his fake Bordeaux and Burgundy wines are in cellars around the globe.

Trading on his reputation, he stands accused of blending less prestigious wines, re-printing labels and decanting them in to old bottles before selling them on. Authorities made their arrest after he was caught selling a 1947 vintage of a wine that was not produced until the 1980s.

Another key area to consider when insuring your wine is your storage arrangements.

Like Goldilocks, fine wines like their surroundings to be just so.

If the air is too dry, the cork can dry out, allowing oxygen to enter the bottle. If it is too wet, the labels can be damaged and affect resale value. Too hot, and the wine’s taste is affected. Too cold and the wine could freeze and expand, dislodging the cork. Too much sunlight causes reactions, particularly in lighter, white wines.

A good option is to pay a professional company to cellar your wine. Then if anything happens to your wine you should be covered under their policy.

For those who want their wines to age in their own cellars, they might look at extending their insurance coverage to take in to account a malfunction of their climate control unit. This could be devastating to a collection, and unless the reason for breakage was a result of one of the risks covered under your fine art policy (for example a fire melting the circuits), you won’t be covered.

There are lots of specialist wine advisers who can advise you on good investments, and once these are made insurance is an important tool for safeguarding your collection.

What it can’t do is reimburse you if the market crashes and your investment doesn’t pay off.

But there is the beauty of investing in wine – if that does happen, you can just drink it.

Katie Small is Board Director for the Private Wealth division of R K Harrison

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