If any industry is filled with risks that could result in financial devastation, it’s the hospitality industry. Things like burns from a hot stove, foodborne illnesses, slip and falls, and cuts from sharp knives can create a minefield for customers and employees. Included in this industry class are restaurants, bars, nightclubs, cafes, caterers, fast food restaurants, and any other establishment that serves food either publicly or privately.
There are risks for the customers and employees that must be considered and then transferred to an insurance company using a comprehensive commercial insurance policy. When we consider the risks in a business that prepares and sells food, there are many to take into consideration:
- Foodborne illness liability
- Injuries to customers and employees
- Damage or loss of property and contents
- Business interruption
- Cyber Liability
Certainly, every restaurateur and caterer wants to prepare and sell quality food so that customers will leave fulfilled and choose to come back for more. But, things can go wrong, and when they do, it will affect your bottom line. The best and the only affordable way to mitigate the risks inherent to the industry is to purchase a comprehensive insurance policy that will cover the financial risks that every restaurateur is exposed to.
What coverage is needed?
There are many coverages that should be considered for a restaurant owner and fortunately, most of the coverages can be purchased in a packaged policy:
- General Liability: Provides coverage if a third party (customer) suffers bodily injury from things like a slip and fall in your restaurant or parking lot. This coverage will also pay if you deliver food or cater for customers and an incident such as dropping a cup of hot coffee on a customer you are catering for.
- Liquor Liability: Most general liability or BOPs (business owners policy) do not include this coverage and it must be added on by endorsement. This coverage provides financial protection if a third party has an alcohol related incident such as a car accident, after consuming alcoholic beverages on your premises.
- Product Liability: Your product liability coverage will pay if a customer becomes sick or ill because of a Foodborne illness
- Cyber Liability: Whether you store sensitive information on your hard drive or in the cloud, you will always be vulnerable to hackers who can penetrate your computers and other devices. Allowing sensitive information to be stolen and then sold on the black market will lead to regulatory fines and loss of customers. Your Cyber Liability coverage protects your business financially in the event of an attack and helps pay for the losses that will result. In today's marketplace, it's no longer a matter of "if" but "when."
- Commercial Property: Property coverage pays if your property or contents and inventory need to be repaired or replaced due to a covered peril (reason for the damage).
- Workers’ Compensation: Workers' Comp insurance is typically mandatory in each state. This coverage pays in the event one of your employees is injured or becomes ill because of job-related activities. The coverage pays for medical expenses, lost wages, and helps with funeral expenses if the employee dies as a result of a work-related injury or illness.
- Employment Practices Liability Insurance (EPLI): EPLI protects your business if an action is brought against you for harassment, discrimination, or wrongful termination. These actions can be brought by current employees, former employees, and even applicants that you interviewed but did not hire.
- Commercial Auto Insurance: Many restaurants own a vehicle that’s used for picking up supplies or delivering meals. In this case, a personal auto policy will not provide coverage even if the vehicle is in your name personally. This would especially apply if you deliver pizza or other fast foods. A commercial auto policy provides liability coverage if you or an employee are in an at-fault accident, and it will pay for repairing or replacing the vehicle after an accident.
Fortunately for hospitality businesses, many of the coverages described can be purchased as a package, which makes keeping track of the many coverages simple and typically more affordable versus purchasing each coverage separately. These packages are referred to as a Business Owner’s Policy (BOP) or a Commercial Package Policy which are both packaged policies that include liability and property coverage, depending on the insurance carrier.
How Much Does a Package Policy Cost for a Restaurant?
The rates for a BOP or Package policy vary depending on your underwriting results and the coverages offered in the policy. In most cases, the following issues will affect your insurance cost:
- Years in business
- Average number of customers served annually
- Average annual revenues
- Number of employees
- Claims history
- Type and age of the building if owned (masonry, frame, metal)
- Fire and security system (monitored or local)
- Value of contents, equipment, and inventory
According to several of the leading insurers that provide coverage for restaurants, the average premium for a BOP or Commercial Package policy will cost between $1,150 and $10,000 per year, depending on the size of the restaurant. The package policy will typically include general liability, property coverage, liquor liability, product liability, business interruption, and employment practice liability.
What About Workers’ Compensation?
Since workers’ comp rates and regulations are typically controlled by each state, your cost for coverage will depend on the state your business is located, your number of employees, and any history of claims from previous workers’ comp insurers.
Fortunately, the rates for restaurant employees is relatively low at $2.25 per $100 of payroll. For example, if you pay your employee $30,000 per year, you divide the annual payroll by $100 and then multiply the result ($300) by the rate of $2.25, and your estimated cost would be $675 plus any administrative costs that may be added to the policy.
Which Coverages Are Not in a BOP or Commercial Package?
Although a BOP or Commercial Package can include many of the coverages that every restaurant may need, the following coverages will typically have to be purchased separately:
- Commercial Auto - typically starts at $600 per vehicle per year
- Workers’ Compensation - estimated annual cost would be $600 per employee, per year
- Cyber Liability - the current industry average is about $800 - $1,200 per year
Additional Coverages to Consider
Depending on your location and the size of your restaurant, other coverage you may want to consider for comprehensive protection are:
- Terrorism Insurance: Since damages resulting from acts of terrorism are typically excluded from a standard BOP or Commercial Package policy, you have this coverage added on as an endorsement or purchase a stand-alone terrorism policy.
- Umbrella: Most commercial policies contain liability limits of up to $2 million which may be insufficient if you have a large operation. With an umbrella policy, you are able to extend your liability limits to $5 million or $10 million dollars.
- Flood Insurance: Even if your building is not located in a hazardous flood zone, you should still consider flood insurance. Over 30 percent of all flood claims are filed by policyholders who are not located in a hazardous zone. It’s important to note that your BOP or Commercial Package policy does not cover damage caused by flood water.
The hospitality industry is a huge part of the marketplace when you consider all the types of businesses that are included. Those who are creative and love to serve others will typically find it very rewarding and in many cases, a great way to make a living. You must, however, be mindful of the many risks involved, and do everything possible to transfer those risks to a highly rated insurer who will have your back when things go terribly wrong.