Insurance for Restaurants: Customized Ingredients Are Crucial

June 29, 2022

What percentage of independent restaurants closed due to loss of business caused by the COVID-19 pandemic? Due to a lack of established criteria regarding what constitutes a restaurant and lack of clarity regarding reasons for closing, no one’s certain, as the Washington Post recently reported. 

Nevertheless, the publication offered its “best estimate.” According to the Post, of the 660,000 “food services and drinking places” that existed just before the pandemic, those that have since closed number around 70,300 after subtracting the average shutdown rate. That’s about 11% — not good, but certainly far better than the 75%-85% failure rate predicted by some industry experts at the onset of the pandemic. 

Kudos to the restaurant industry, which has shown itself to be remarkably determined, resourceful and resilient throughout the crisis. Thanks to a combination of innovative thinking, hard work, government aid, loyal customers and pent-up demand, it’s more likely than not that your favorite local dining destination before COVID-19 is still serving food and beverage today. 

But will that be the case a month from now? Past loss of business resulting from temporary shutdowns and restrictions, coupled with investments in those innovations that helped so many establishments draw customers — patio igloo, anyone, or would you prefer our new takeout menu? — also resulted in increased debt. Factor in increased staff wages necessitated by a worker-friendly employment market, then top it all off with rampant inflation, and it’s clear that many independent restaurant owners who survived the pandemic continue to operate under circumstances that are precarious at best

Insurance Solutions 

Amid all these challenges, insurance provides both essential protection against the restaurant industry’s many risks and significant expense that can eat into a dining and drinking establishment’s narrow profit margins. Because insurance needs are highly specific to not only to the restaurant industry but also to each individual establishment, restaurant owners are best off working with an agent or broker who knows the food-service business and understands each individual establishment’s unique operations. 

Beatnic is a chain of restaurants with locations in Manhattan, Brooklyn, Boston and Providence. In an interview with Nation’s Restaurant News for the May 31, 2022, story “Insurance remains a challenging area for restaurants,” Beatnic’s president, Catey Mark Meyers, said of restaurant insurance:  

“It’s specialized enough that it’s hard for somebody who’s running a business to dedicate enough mental capacity and get smart enough to make good decisions. I wouldn’t trust my opinion solely. I can ask questions, but I wouldn’t trust my opinion to put together a package for us.” 

According to Nation’s Restaurant News, “Meyers said Beatnic’s team will assess risks and match insurance levels from options provided by a broker.” 

“Because our policy is more granular, and there's certain coverage for different types of incidents, it allows us to say, ‘OK, well we think the likelihood of this is really low, so we're willing to either self-insure or take a higher deductible on this particular policy,’” Meyers said.  

If a location faces significantly greater exposure in another area, the restaurant can work with its broker to strengthen coverage there, as well. And Meyers and Beatnic aren’t unique in that respect. Restaurants everywhere benefit from working with an expert to provide customized coverage to meet their unique needs. 

Market Outlook Entering 2022 

In December 2021, Alera Group published the Property and Casualty 2022 Market Outlook. We foresaw a generally stable P&C market for restaurants and cited the following factors: 

  • Changes in business models could affect protection. The pandemic has led many restaurants to adapt operations. For example, if your restaurant is serving more takeout meals, be sure your General Liability includes coverage for meals consumed off your premises. If you’ve added catering or delivery service and use a vehicle for the restaurant, you’ll need commercial auto. 

  • Experience counts. Insurers writing this business will look closely at the restaurant’s profitability and loss history over time. Expect insurers to run individual credit scores on owners. New businesses seeking insurance will need to document owners’ restaurant management experience to secure coverage. 

  • Pay attention to any capacity limits stated in your policy. During the pandemic, some restaurants added features such as outdoor seating and food trucks, which increased capacity. If this has become a part of your business, make sure your policy is aligned with your current capacity. If you’ve invested in outdoor structures, furnishings and equipment, ensure it’s reflected in your property coverage. 

  • Insurers will look closely at maintenance. Claims data shows that when businesses are under financial pressure, there’s a tendency to let routine maintenance slide. This trend is exacerbated by staff shortages, the difficulty and high cost of completing repairs and the long wait times for equipment and replacement parts. In addition, inadequate maintenance can lead to unsafe conditions for customers and employees. 

  • “’Alcohol to go’ could generate liquor liability exposure. Some jurisdictions expanded laws concerning liquor deliveries to permit bars and restaurants to sell alcoholic beverages for off-premises consumption. Some states have made it a permanent measure. As a result, establishments could be exposed to untested liquor-related liability allegations. Since these laws are new, the full impact on liquor liability lawsuits may not be apparent right away. 

  • Employment Practices Liability will remain an essential coverage for restaurants. Restaurants have long been vulnerable to claims arising from age discrimination, sexual harassment and wrongful termination. COVID-19 is contributing to a surge. Complaints include failing to take proper steps to reduce health and safety risks, and employer discrimination against employees with COVID-19 concerns. Business owners’ policies on vaccinations will likely generate additional claims.” 

We expected underwriter scrutiny to remain stringent for all lines of coverage and saw market conditions for Employment Practices Liability, Umbrella/Excess Liability and Workers’ Compensation as particularly challenging. 

Elsewhere in the Market Outlook, we examined conditions for another line of coverage vital to the increasingly digitalized restaurant industry: Cyber Insurance. Here, too, the forecast was dire, foreseeing strict underwriting requirements and expected rate hikes of close to 16% or more. 

2022: The Second Half 

In a June 21, 2022, article for the global hospitality website Hospitality Net, Swiss Hotel Management School lecturer Philippe Guetzler shared his thoughts on restaurants that permanently shut their doors during the pandemic, those that survived and the ones that now thrive.  

“I think central to many businesses’ success was their ability and willingness to prioritize their customers’ needs and desires over their own,” Guetzler writes. “Those who keenly listened to their customers learned how to adapt to the changing climate. And those who continue to do so as restrictions lift, are emerging miles ahead of their competitors.” 

Guetzler says that restaurants with an operational manual for their employees prior to the pandemic were in the best position to make adaptations — he could have added that they were also in the best position to avoid employment practices liability issues, a common problem in the restaurant industry — and cites these common traits among those thriving under current conditions: 

  • Embrace of technology, such as online ordering and frequent communication with customers through social media; 

  • Simplified menus that emphasize the restaurant’s strengths and better enable them to “navigate challenging staffing issues, ever-changing restrictions and hygiene protocols, and rising food costs”; 

  • Prioritizing customers’ needs and desires, with an emphasis on safety and convenience, as well as quality food, atmosphere and service; 

  • Offering staff incentives to attract and retain seasoned and skilled employees; 

  • Attracting customers during traditionally off-peak hours, through incentives such as off-peak specials and pricing. 

With adaptations, however, come shifting insurance needs. Increased use of technology, for example, also increases cyber exposure, making cybersecurity and Cyber Insurance all the more important. Offering delivery, either by an employee or through a third-party service, raises a number of issues, including the need for Commercial Auto Insurance and Off-Premise Liability Insurance. Offering outdoor dining on a city sidewalk makes it advisable to add the local municipality as an “additional insured” in an endorsement to the restaurant’s General Liability policy. 

An Eye on the Competition and Community 

When examining what’s made some similar restaurants succeed and others fail, it’s important to look beyond food and services to those who do the serving and their fellow staff — especially in a labor market as tight as the current one. The best way to do that? Benchmarking. 

The Society of Human Resource Management (SHRM) defines benchmarking as “the systematic process of comparing an organization’s processes, practices and results against those of a competitor organization or other industry leader to improve performance.” SHRM recommends benchmarking as a tool for decision-making as businesses devise strategy and plot their future. 

On Thursday, July 21, Alera Group will host “Grow Through Benchmarking: 2022 Survey Results Reveal,” a one-hour webinar in which we’ll share responses to our April 2022 survey of more than 2,500 employers in multiple industries — including food services. Participants will see what businesses similar to theirs are offering their employees in terms of wages, benefits, work arrangements and more.  

Benchmarking is yet another way restaurants can adapt to the demands of the post-pandemic marketplace and be among the ranks of those that not only survive but thrive. To register, click on the link below. 


About the Author 

Jeffrey Naber, CIC 

Senior Producer 

Lighthouse, an Alera Group Company 

Known for his service to his clients, as well as for his expertise in insurance for restaurants, Jeff Naber is a Certified Insurance Consultant (CIC) with more than 17 years of industry experience. 

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