John Kempkey, (left) and Ed Kempkey, owners of Kempkey Risk Management Services, discovered that wineries are the perfect niche market.
In today's insurance marketplace, many property and casualty companies and agencies like to talk about how they are "niche" marketers. Through niche marketing, insurance companies and agencies concentrate on strong market penetration and underwriting expertise instead of trying to be all things to all people. In truth, however, these companies and agencies are playing a game of follow the leader. One company sees another targeting a market, achieving good penetration and becoming successful within that niche. Before long, other companies are falling in line behind the leader, competition becomes fierce and the niche is no longer profitable. Out of a survival instinct, independent insurance agencies often get swept into the game.
Sometimes, following the leader works. An independent agency may be very good at anticipating the leader's next move. Unfortunately others are not in step with the objectives of the leader's niche marketing program, and they don't find success within the market.
In Napa, California, Kempkey Risk Management Services has become successful by not playing follow the leader. At the same time, it has prospered through niche marketing. Ed and John Kempkey, owners of Kempkey Risk Management Services, chose their niche by looking in their own backyard--the wine country.
Early in the founding of Kempkey Risk Management Services, the Kempkey brothers decided to do more than just sell insurance. They developed a philosophy that there is more to insurance than just selling a policy. They believe they have a responsibility to their clients to help them contain and manage costs by assisting them in improving their profitability through sound, value-added risk management programs. As a result, Kempkey Risk Management Services provides top-quality risk management services to the wine industry and other commercial businesses that make up their clientele.
Both brothers began their careers in the insurance industry working for an agency in Southern California. But the Los Angeles environment wasn't what they wanted to settle into, and they longed to return to their roots in Napa. In 1980, they moved back to Napa and started their own agency with zero clients.
"When we first began, we took on all comers," says Ed Kempkey, president of Kempkey Risk Management Services. "If they walked through the door, we'd take them. We were writing both personal and commercial lines at that time."
"In 1987, we decided we wanted to specialize, and we really wanted to focus on commercial lines. But, we needed a niche. So, we began to look around and all we could see were vineyards and wineries. We were smack dab in the middle of wine country! Our direction was obvious, so we went to one of our carriers and developed a commercial lines program with a wine industry endorsement. While that program was successful and marked the growth of our entry into the wine industry insurance business, it was not exclusive to us."
Fast forward to 1999. After years of research and hard work, the California State Department of Insurance formally approved a new comprehensive insurance policy specifically written for wineries. The only one of its kind in the country, the policy was authored by Kempkey Risk Management Services.
"The policy brings together the best coverages from other available policies and incorporates them into a program that includes specific coverages frequently requested by wineries," says Ed. "Some examples include agreed valuation for stock, which covers loss of future profits. The policy also covers wine leakage, contamination, mechanical breakdown, product recall expenses and trellis and vine exposures. Most policies presently offered to wineries start out as basic business insurance policies, then coverages are added by amendment in order to cover the winery. By incorporating these coverages within our new policy, it becomes easier to read and less subject to conditions and exclusions found in other policies."
This special policy is underwritten by Golden Eagle Insurance Corp., a major California-based insurer financially rated as A+ by the A.M. Best Co., with similar superior ratings by other agencies. Kempkey Risk Management Services is the exclusive program administrator, and the policy is part of Kempkey's Preferred Winery Risk Management Program, which also includes workers compensation coverage and risk management consulting services. To supplement the winery and workers comp programs, the agency also created an employment practices liability insurance program for wineries.
David Lockwood, (left) vice president of finance and CFO at Joseph Phelps Vineyards, provides wine for John and Ed at a wine tasting bar at the Vineyards.
"A tremendous gap exists between a winery's general liability and workers compensation insurance," says Ed. "Neither of these policies are intended to provide for claims such as harassment, discrimination and wrongful termination. That is why we created employment practices liability insurance designed just for wineries as part of our Preferred Winery Risk Management Program. Our new EPL program is tailored to meet the specialized needs of wineries, providing policyholders with competitive rates, broader EPL coverage, EPL claims expertise and value-added service, including tailored risk management services." The exclusive program is backed by Lexington Insurance Co.
Supporting their clients with risk management education has become key to Kempkey's business practice and has led the agency in a direction of value-added service.
"Our philosophy has always been that insurance is one technique for protecting a company from loss," Ed explains. "Insurance without sophisticated risk management techniques being applied still leaves a company exposed. We believe that part of our job as insurance brokers is to educate our clients about techniques--other than just insurance--that are available to minimize risk. Therefore, we share our risk management expertise with our insureds. If our clients are willing to bring their leadership to the table, we will support them with risk management education within their own organization."
To back up their philosophy, the Kempkey brothers have hired an on-staff safety professional to assist their clients in maintaining a safe working environment that meets government standards. They have also hired a licensed workers compensation claims administrator to assist their clients in controlling costs.
As soon as the Kempkeys carved out their niche, they authored a policy that covers loss of future profits, wine leakage, contamination, mechanical breakdown, product recall expenses and trellis and vine exposures.
"In terms of risk management and loss control, we believe that if our clients don't get it from us, then where will they get it?" Some prospects say they don't care about risk management. They just want insurance. But, that's not the way we work. We have found that among those companies for whom we do risk assessments, we have a 93% hit ratio on writing their insurance."
Ed Kempkey says that risk management is extremely important especially when insuring wineries. "To the casual observer, it might seem that drinking and driving are a major exposure for wineries," he says. "In fact, that is a very low exposure for wineries. The people who run wineries are very professional. They don't want people who visit to come in just to get free drinks and get drunk. Instead, they want visitors who are genuinely interested in wine. They taste, and then they buy the wine and have it sent to their homes."
"The real exposures come from the very things we have included in our policy--contamination, leakage and mechanical breakdown. Unlike other forms of manufacturing, in the winery business when stock is lost or damaged, the product cannot be reproduced. Fine wines depend upon certain natural elements to produce particular vintages that reflect nature--which change from year to year. Wines age several years with the wineries depending upon the inventory for future profits. If loss occurs either in the vineyard or in the winery, we're not just talking about the loss of the product itself. We're talking about future profits that are lost. That's why it's essential to agree upon a value when writing the policy."
The first step in the risk management process is to identify the various exposures a winery faces. To accomplish this, Kempkey developed special software they nicknamed WRAP, which stands for Winery Risk Assessment Program. By conducting site tours, interviews, risk surveys and completing checklists, the data is entered into the client's computer. The program then produces a report, which is an evaluation of the organization's risk management status and processes, providing an objective opinion on its effectiveness.
Another set of tools developed by Kempkey Risk Management Services includes an Injury and Illness Prevention Program and a Risk Management Procedures Guide, currently available to their clients on CD-ROM. These programs provide clients with a foundation for customizing written programs to help communicate their policies on risk within the organization.
All of these tools are supported by Kempkey's STARR (Safety Training and Risk Reduction) School, which is held weekly at the Kempkey office. Believing that well-trained supervisors and managers can make a big difference in the success of a company's risk management program, the STARR School is designed to help companies become better prepared to implement and maintain effective injury and illness prevention programs. Additionally, Kempkey clients and others interested in risk management learn how to be more effective managers in training employees, recognizing hazards and becoming proactive instead of reactive when situations that can result in costly accidents arise.
In addition to concentrating on risk management and loss control, Kempkey Risk Management Services is also focusing on new technologies. "We provide a 24-hour, seven-day-a-week customer service support on our Web site," says Ed. "Customers are able to view all their policies and coverages and request changes and updates electronically. They are also able to complete and electronically send us claim information, which speeds up processing to the insurance company. From our client's own office, they can enter the name and address of the certificate holder and print them out so that they can be mailed or faxed to a recipient for quicker processing. We believe this a valuable add-on service that we are performing at our own expense."
It is clear, then, that Kempkey Risk Management Services has truly pioneered its niche by focusing on its own backyard. At the same time, the Kempkey brothers continue to pioneer niche marketing in the sense that they do more than just sell insurance. Today, the agency primarily does business in northern California. However, Ed Kempkey says that branching out to Oregon and Washington is "in the works." After that, who knows? *