Many changes have happened in the last couple of years—especially for restaurants. While your restaurant may have adapted to keep up with the changing times caused by COVID-19, that adaptability may have implications for your insurance coverage. Many restaurant operators have looked to their insurance policies for protection during this period of business interruption, but most policies don’t meet their anticipated coverage. Added restrictions, guidelines, and recommendations for restaurants have continuously changed since the start of the pandemic, forcing owners to be even more efficient and resourceful to meet customers’ needs and keep their businesses afloat.
1. The Cost: Navigating a Hard Market
Everyone feels it. Property and casualty insurance is in a challenging market. We’re hoping it will start to decrease in cost over the next 2-3 years, but various factors, such as natural disasters and inflation, have made it challenging. It’s akin to a bull in a bear market. Supply and demand dynamics have resulted in fewer favorable terms, including pricing. Many insurance companies welcomed restaurants years ago, but many carriers don’t anymore. Securing good terms and conditions at a reasonable cost is becoming more challenging.
The real estate market has also changed dramatically over the past few years. Even if a restaurant’s revenues have dipped, the property is now worth much more, requiring increased coverage when insurance companies offer more minor policies.
2. Evolving Terms and Conditions
Restaurant terms and conditions (coverage) used to be much more comprehensive and readily accessible. Many have changed, become more limited, or simply no longer exist. Even when they do exist, gaining access to them can be very challenging on the brokerage side. For instance, in business interruption coverage, some used to get an endorsement for a waiting period, often reducing it to no time, maybe 12 hours, or at most 24 hours. Now, it can be up to 72 hours, impacting the time it takes to receive compensation.
3. Shrinking Capacity in the Market
The hospitality industry is now experiencing a “hard market” where premiums are rising, and underwriting has become far more stringent, with insurance companies reducing their flexibility and negotiating appetite for coverage terms and even pricing. The number of carriers willing to cover non-franchised restaurants, whether private equity-backed, institutional, or individually owned, is diminishing. These businesses may be profitable and growing, but fewer insurance companies will provide coverage.
4. Extended Claims Handling Time
On the broker’s side, diligence is paramount. In the past, terms and conditions and pricing could be secured within 60–90 days, but today, it can take up to 6 months to get it done effectively. This additional time allows for negotiations with underwriting teams to secure the best terms, but it can also be challenging when time is of the essence.
5. The Role of Technology, including AI
The debate on how to utilize technology, particularly AI, is ongoing. AI enables insurers to analyze extensive data, including the restaurant’s location, size, external factors, and even more abstract sources of information, such as Yelp reviews and social media postings, to assess the insurance carrier’s potential risk accurately. This can lead to more appropriate premiums customized to the restaurant’s needs.
In light of these changes, allocating more time and diligence to gain access to terms and conditions, and thoroughly reviewing them, can help to ensure they provide the broadest coverage available for every client. We’re hopeful that the cyclical market will favor restaurants and bring some relief from the recent pricing increases, which have been particularly burdensome for smaller businesses. Change is inevitable, and the restaurant industry must adapt to evolving customer needs and the shifting landscape of insurance, making it more vital than ever to have the right coverage in place.
Matt Mallory is the CEO of Mallory Agency. One of the premier property and casualty insurance brokers in the state of Georgia, Matt almost exclusively advises middle and upper middle market restaurant groups, providing insight into the various ways a strong insurance partner can help restaurant operators.
