Prestigious wine auction highlights need for specialist insurance for consumable investment assets
After an involuntary year’s hiatus, the prestigious and highly sought-after Cape Wine Auction recently took place at Quoin Rock in Stellenbosch. But connoisseurs are warned that the high prices that these liquid alternative assets fetch, present a unique set of risks and highlight the need for specialist insurance cover.
Under the gavel
At the last Cape Wine Auction held in 2020, the top ten bids raked in over R12 million. One of the biggest bids at the Auction totaled half a million rand for a lot that included six bottles of Meerlust Cabernet Sauvignon 1975. This wine, regarded as a South African classic, was the first to carry the Meerlust label and in 2019, three bottles were auctioned off for just under R8000.
At the top end of the scale, in 2021, a 200-year-old bottle of wine, originally destined for Emperor Napoleon Bonaparte broke a record when it was sold for almost R1 million at an auction. With just 12 bottles of this highly sought after wine still in existence today, the high price tag doesn’t seem quite so high.
Bertus Visser, Chief Executive of Distribution at PSG Insure, advises: “It is of particular importance that these types of consumable alternative assets be counted as part of an individual’s accumulated wealth, and to protect the assets accordingly.”
When you invest in your passion
Wine, like cigars and other high-priced collector’s items are an alternative investment class that is gaining popularity throughout the world. And with South Africa being one of the world’s top ten largest wine producers, locals are in a unique position to take advantage of the potential of this investment.
Visser explains that because the majority of home contents policies do not make provision for expensive (and often consumable) commodities, individuals will need bespoke policies to ensure that they are protected from various, rather unique risks.
“High-value items such as wine, whisky and cigar collections that can be consumed require highly sophisticated insurance policies with clearly defined parameters and terms. It’s important for individuals to have a clear understanding of what their policies cover, and what their risk exposures are,” he asserts.
A case in point
Visser elaborates on his point by way of an example. A former Officer of Regulatory Policy tells the story of a man who insured his collection of expensive cigars against fire damage. He then proceeded to smoke all the cigars and put in an insurance claim for fire cover. The insurer rejected the claim, but because the wording of the policy did not preclude smoking the cigars as a form of fire damage, the man was able to sue the insurer successfully and won the case. However, when the man withdrew the payout, the insurer went on to sue him for multiple cases of arson.
There are a number of examples of similar insurance cases where valuable assets have required comprehensive policies with a defined and bespoke set of terms. There is also a myriad of considerations to be made that will be specific to the relevant asset. In the case of wine, for example, individuals may consider taking out coverage for theft, breakage, damage due to power outages, cellar faults or equipment failures, and breakage in transit.
In another example, a PSG adviser tells of an incident where a couple put in an insurance claim for an expensive bottle of wine that was part of a prized collection. While looking after the couple’s residence, a student consumed the bottle of wine, not being aware of its value. Had the couple not had the foresight to insure their collection, the sentimental loss they suffered would have been compounded by a significant financial one.
“Make sure that your adviser is equipped with all the necessary information to go through every eventuality with you before you take out a policy. Proper risk management and insurance planning is an essential part of sound financial management,” concludes Visser.
