Property and Casualty

Say ‘Yes, Chef’ to an Annual Restaurant Insurance Review

August 4, 2023

featured kitchen review

The phrase “Yes, Chef” holds significant importance in professional kitchens, originating from the military kitchen brigade system. It symbolizes order and discipline, instilling a structured approach to delivering an exceptional dining experience. Just as in the military, everyone in the restaurant kitchen knows their role, and all needs are covered. The phrase is also enjoying a pop culture moment, thanks to the hit FX TV show "The Bear" and the dark satirical movie "The Menu."   

The “Yes, Chef” concept can be applied to restaurant insurance portfolios as well. Restaurants face various risks, ranging from kitchen fires to cyber attacks. To protect their business, restaurant owners need a comprehensive program of insurance policies to cover exposures. And as restaurants continue to evolve, insurance needs change too. Therefore, conducting a disciplined annual review is essential.  

Post-COVID Pivots  

During the pandemic, the National Restaurant Association reported that many restaurants pivoted to stay afloat with creative solutions including expanded delivery services, outdoor dining, to-go alcohol offerings and technology investments. Many temporary solutions have become permanent, affecting insurance needs.  

For example, if employees started driving their own vehicles for deliveries or business errands, the restaurant needs Hired and Non-Owned Auto Liability Insurance.  

Optimism Is on the Menu 

Overall, optimism abounds for the restaurant industry as the new normal moves full steam ahead. The food service industry is expected to continue growing in 2023, with the National Restaurant Association forecasting $997 billion in sales. In addition, the workforce is projected to add 500,000 new jobs, bringing total restaurant industry employment to 15.5 million in 2023.  

Workforce shortages are the primary industry challenge, and the new Essential Workers for Economic Advancement Act creates a pathway to help restaurants find and hire qualified employees.  

Menu price hikes have not deterred patrons. Similar to the travel industry, there’s a pent-up demand for the restaurant experience.  

‘Autocado’ and New Tech Trends 

Emerging technology aims to automate various restaurant industry tasks, from administrative duties to guacamole production. Experts at the May National Restaurant Association Show foresaw managerial automation playing a pivotal role in shaping the industry’s future, including in the area of labor law compliance. This advancement is welcome relief for restaurant risk managers, as it helps prevent employment practices liability claims stemming from wage and hour disputes and other employment exposures.  

Additionally, the debut of robots and AI innovations introduces new exposures that should be accounted for in the insurance program. Consider the proprietary Chipotle's “Autocado" robot, which, automates avocado cutting, coring and peeling, halving the production time for a batch of guacamole.  

Annual Restaurant Insurance Review  

Wear your critic’s hat and perform an insurance review on your restaurant business. Verify valuations and perform a self-audit of sales and payroll before your insurance carrier conducts one. Sometimes when policies renew year after year, those numbers go unnoticed.  

Reporting accurate numbers and underwriting information is crucial for several reasons: 

  • In the case of a total loss, your limits may be insufficient to cover the claim, leading to out-of-pocket expenses. Check values and insurance limits for the building, property and inventory.  

  • If the scale of your operations has decreased, you might be overpaying on premium dollars. Sales and headcount affect rating on multiple policies. 

  • A carrier audit revealing significant discrepancies could result in a policy cancellation.  

When selecting policy limits, consider rising claim costs and settlements. For example, in the past six months, a McDonald’s franchise owner paid nearly $2 million to settle an EEOC sexual harassment lawsuit, and another franchise faced bodily injury liability when a McNugget burned a young child, resulting in an $800,000 jury award.    

If anyone drives for the business, report each driver in all relevant policies and ensure that the Auto policy extends coverage for hired and non-owned cars. 

Discuss the new tech trends you’ve adopted with your insurance broker, and adjust your insurance coverage accordingly.   

Considering inflation and rising construction costs is vital when selecting Property Insurance limits. In the event of a total loss due to fire or other catastrophe, the cost to rebuild a restaurant today is significantly higher than in years past, making it essential to adjust replacement-cost coverage limits to reflect current market prices. 

Reviewing the Restaurant Industry Insurance Market 

In December 2022, Alera Group released its 2023 Property and Casualty Market Outlook. Here’s what we said about the restaurant sector:

“The insurance market outlook for restaurants is likely to be stable for 2023. In most lines, price increases are rising at a slower rate. Some clients with good loss histories in non-catastrophe-prone areas will see rate reductions in some lines. Factors influencing the market:  

  • Cyber risk is growing. Restaurants’ expanding use of technology and third-party vendors for everything from managing supplies to customer ordering, reservations and delivery is increasing vulnerability to cyber-attack. While standard insurance package policies may include some protection, this coverage is typically limited.  

  • Food safety will continue to be an important issue. The potential for food poisoning, contamination, spoilage and allergic reactions is ever present, making continued customer safety a challenge. Labor shortages and inexperienced staff increase the risk of inappropriate food handling. Takeout orders present the additional challenge of maintaining the time and temperature controls needed to prevent food-borne illnesses. 

  • A change in the business model could impact protection. The pandemic led many restaurants to adapt operations. To ensure adequate protection, it's important to review with the broker changes that have become a permanent part of the business. For example, if the restaurant is serving more takeout meals, the General Liability policy needs to include coverage for meals consumed off the premises. If a restaurant vehicle is being used for catering or delivery service, the restaurant will need Commercial Auto coverage. 

  • Insurers will pay close attention to equipment maintenance. Claims data shows that when businesses are under financial pressure, there’s a tendency to let routine maintenance slide. In addition, inadequate maintenance can lead to unsafe conditions for customers and employees.  

  • Some insurers are avoiding risks created by habitational exposure. There is an increase in insurers that do not want to write restaurants in mixed-use buildings that include residences. 

  • Employment Practices Liability will remain an essential coverage for restaurants. Restaurants have long been vulnerable to claims arising from age discrimination, sexual harassment, wage-and-hour disputes and wrongful termination. These suits tend to increase during tough economic times.  

  • Experience counts. Given the high failure rate of restaurants, insurers will look closely at management and the business’ profitability over time. New businesses seeking insurance will need to document owners’ restaurant management experience to secure coverage.” 

Midyear, the most challenging market trend for restaurant insurance buyers pertains to Property Insurance. Workers’ Compensation, Employment Practices Liability and Cyber Liability Insurance are relatively stable and accessible for restaurants. Auto Insurance is experiencing a hardening.  

Property Insurance Challenges 

Akin to a chef’s 10-course tasting menu, a restaurant insurance program comprises various coverages or “ingredients” that protect everything from Wagyu beef to customer credit card data. While some courses are easier to prepare than others, each plays an integral role in protecting the restaurant.  

Today, the most formidable coverage is Property Insurance. Restaurant owners should expect diminished capacity, higher rates and stricter underwriting.  

For upcoming renewals, start the process early. Consider any COVID-related pivots in your operations and assess the property and inventory valuations at today’s pricing. Also, it is crucial to grasp the shift in underwriting parameters compared to previous years.  

Restaurants located in coastal areas and those with unfavorable loss experience will prove to be the most challenging. 

Understanding the Carrier Viewpoint 

Carriers are streamlining their books of business and gaining rate increases in other areas. Consequently, even if a restaurant has a positive claims history, favorable location and operations, the carrier may decline because the risk no longer aligns with the carrier’s underwriting guidelines. This underscores the importance of starting the renewal process early, as finding another carrier may become necessary.  

Property Insurance is the line of coverage most vulnerable to unfavorable market conditions, followed by General Liability Insurance and Auto Insurance. In the past, carriers might have made exceptions, but nowadays they are either renewing with significant rate increases or opting for nonrenewal.  

Also, carriers are now conducting more onsite building inspections than in prior years, scrutinizing risks that were previously renewed without much attention. Carriers are less willing to underwrite undesirable properties. Starting the renewal process early can mitigate surprises and grant restaurant owners time to implement improvements to increase favorability with underwriters.  

The Special Sauce: Your Insurance Broker  

Working with an experienced broker greatly increases the likelihood of comprehensive new coverage placement and program renewals. A knowledgeable broker can guide you through the process and will: 

  1. Maintain communication throughout the year; 

  2. Respond quickly during the claim process; 

  3. Initiate the renewal cycle early; 

  4. Market your account to other insurance carriers if you no longer fit the incumbent carrier’s underwriting guidelines; 

  5. Advise if business operations require new coverage, endorsements or higher limits; 

  6. Provide access to online risk management resources for employee handbooks, safety guidelines and labor law compliance.  

By partnering with the right broker, restaurants can navigate insurance complexities with confidence and focus their resources on serving their next meal. Bon appétit!  

For a broader look at navigating insurance market conditions, read Alera Group’s 2023 Property and Casualty Market Outlook and our March 2023 Commercial Property Update.  

With more than 130 offices around the country, Alera Group combines local service with national reach and provides individualized, carefully crafted coverage programs that fit each client’s unique needs. To contact an Alera Group agent or broker, click on the link below. 


About the Author  

Jeffrey Naber, CIC

Senior Producer

Lighthouse Group, An Alera Group Company 

Jeff Naber, a Certified Insurance Consultant (CIC), brings more than 17 years of insurance experience as a trusted adviser. Specializing in property and casualty programs for restaurants, he helps his clients navigate the marketplace for comprehensive coverage and the best coverage terms to protect their restaurants and financial interests. Jeff also supports the claims management process, advocating for swift and fair claim closures with adjusters on behalf of his clients. 

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