Cut Costs or Cut Bait | Restaurant Insurance

This article provides helpful hints regarding restaurant insurance and was written by commercial insurance expert Morgan Ryan.  It originally appeared on  RunningRestaurants.com.

Cut Costs or Cut Bait

by Morgan Ryan

At a time when most operating costs are going up, commercial insurance carriers are seeing more competition and consumers are reaping the benefit.

We've been on the downward side of the commercial insurance curve for the past 14 months. The insurance industry recorded record high profits in 2006, triggering a rush of capital flooding the insurance marketplace. Several new commercial insurance companies began their operations, which created more competition and a greater "supply."  As we learned in Economics 101, when supply increases and demand stays the same, pricing drops. In 2008 insurance pricing for Liability, Property, Auto and Workers Comp will continue to decline. Restaurant owners have seen their restaurant insurance rates decrease by 15-40% over the past 14 months.

When will it stop?  Once carriers are paying out more in claims and operating costs than what they are earning in premium dollars.  This cyclical market will begin to harden when commercial insurance companies start losing money again.  Catastrophes like 9/11 or a hurricane season marked by numerous large property losses certainly speed things along.  Increased litigation or large lawsuits pertaining to Liquor Liability, Workers Comp or Food Borne Illness can also trigger pricing increases specific to the restaurant insurance market.  Of course there is always the new "claim de jour" that we have yet to think about.  Some good examples are the class action suits related to FACTA and other privacy suits brought on by leaving credit card information on sales receipts.

The only thing certain is that the hard commercial insurance market will return.  It does not matter if the market rates are increasing or decreasing.  By focusing on risk management, reducing your losses and paying attention to details you can cut your costs in any market. With the current state of the economy, cutting significant costs now can save a few jobs.  Ultimately, the best defense is a good offense.

Here a few tips that may help you get it done:

Choose the Right Partner - Commercial Insurance is one the most misunderstood, bewildering, bozo-infused industries out here.  One of the craziest things about commercial insurance, and the way broker compensation is set up - you essentially pay the same amount for the filet as you do for a hamburger!

My experience with restaurant insurance, as a commercial insurance broker, and tutelage under the Dean Fearing of Insurance* has taught me - lawyers, restaurant executives, and owners have little idea how commercial insurance actually works. (Coincidentally, my last meal at the Ritz-Dallas left me with the realization I have no idea how to prepare Duck A La Range either - so we're even)  Find a commercial insurance broker who is an expert in the restaurant industry, has demonstrated success, and knows where the market is.  Obtain client names and references from restaurants they personally service, and talk to them. (You get a lot of this "We handle Brinker" and it's the same brokerage company, but the actual team is in another office)  Keep in mind, your commercial insurance broker does not have to be local, but they do need to be active in the restaurant insurance industry to know the issues, have some leverage, and also be creative.  Finding a great broker will contribute solutions across an organization, protect a balance sheet both on macro/micro levels, and add $25K+ per location to the bottom line.

Lastly, make sure your restaurant insurance broker has a good team behind them.  No one person can do it all, so pick a team with claims, loss control, alternative risk expertise, and great service.

Location, location, location - Being able to analyze a situation correctly and identifying hidden opportunities are the marks of many a restaurant entrepreneur. Look at the way your concept is set up as an organization to locate potential savings. We have clients who lease all their employees from a PEO and also lease their stores.  The Workers Compensation and property insurance are built in to those costs.  We've seen increased control, and significant cost savings in carving those coverages out, then negotiating from there.  In looking at your organizational structure again, take advantage of consolidating restaurant insurance policies when possible. Not only do you increase premium volume, and thus leverage, but eliminate the frictional costs associated with multiple policies; as well as, the headache of multiple renewals, multiple brokers, and etcetera.

Have a renewal strategy.  Work the cycle.  Don't let it work you.  When the commercial insurance market softens, it may make sense to cancel a current policy to take advantage of lower rates, depending on how much you've paid so far in premiums.  Lowering your premiums mid-term may also allow you to release significant escrow dollars being held, thus freeing up more cash.  Extending the term in a soft market can reduce the length, and sting, of the next hard market.  Also, pay attention to what time of year your policy is set for renewal.  You may want to negotiate your rates at the end of the quarter, when insurance companies are looking for premium to make their numbers.  Lastly, if you have coastal properties, be sure to renew before the hurricane hype sets in.  And renew early.  Don't be held hostage by last-minute quotes.  We've all seen those renewal options that were presented the day before the renewal.  Have the broker present the quote early enough to be reviewed. Then you can look elsewhere if you don't like what they're offering.

Manage Your Claims - If America is the land of the frivolous lawsuit, then the restaurant industry has got to be the epicenter.  Nothing is worse than receiving a lawsuit in the mail and having no idea what happened or the circumstances surrounding the claim.  Usually it will be from some mail-order lawyer with a really clever saying on their 3rd grade website like: "We take names, then kick ass!" Tracking incidents and prompt claims reporting are cornerstones to managing your claims, and reducing claims costs.  You need to set up the processes and procedures to minimize this issue and protect you from these surprises.  Without it, you can become a target.  Finally, set up special claims handling instructions to dictate what claims will be paid, and avoid the disruption of ongoing business in the event of a major loss.

I hope I've offered you some helpful insight into restaurant insurance, something that can be an otherwise confusing and frustrating endeavor.  Make no mistake: there are significant savings to be had in every aspect of every concept in the country.  Risk management and insurance just may not be the first place most people look.


Morgan Ryan is a vice president in the Dallas office of McGriff, Seibels & Williams. McGriff is the eighth-largest insurance brokerage in the U.S. Based in Birmingham, Ala., the firm operates 11 offices throughout the nation, including the Dallas office, which focuses on real estate, restaurant insurance, and multifamily business.

* The Dean Fearing of Insurance is Morgan McMillan, senior broker at McGriff, Seibels and Williams Dallas, and well-known insurance expert. McMillan earned his notoriety and experience handling such brands as Brinker