We've been on the downward side of the commercial insurance curve for the past year and a half. In 2006, profits were at all-time high levels for the insurance industry. These record profits triggered a flood of capital into the insurance marketplace. Additionally, many new insurance companies sprouted and began operations; thus, competition and supply increased. As we all learned in know, when demand stays the same but supply increases, prices drop. The forecast for the immediate future is a continuation of the decline in insurance pricing for Liability, Property, Auto, and Workers Compensation. Over the past year and a half alone, restaurant owners have seen their insurance rates decrease by 15-40%.
Is there an end in sight? There is-once the carriers begin paying out more in claims and operating costs than what they are making in premium dollars. A hardening of this cyclical market will commence once insurance companies start seeing red in their bottom line again. Damaging hurricane seasons that produce large property losses or catastrophic events like 9/11 can certainly expedite the process. More litigation or especially large lawsuits pertaining to Workers Compensation, Food-borne Illnesses, or Liquor Liability can also cause increased prices for the Restaurant Industry. Additionally, there is always the next “claim du jour" that we have not thought about yet. For example, prices could be affected by class actions suits related to FACTS or other privacy suits cased by leaving credit card information on sales receipts.
Only one thing is certain: the hard market will be back. Regardless of whether market rates are increasing or decreasing, focusing on risk management, loss reduction, and paying attention to details can help you cut costs in any market situation. Considering the current state of the overall economy, cutting substantial costs now can help you save a few jobs down the line. Remember, sometimes the best defense is a good offense.
Consider these helpful hints that might help improve your insurance situation:
Location, location, location. Any successful restaurant entrepreneur must have the ability to analyze situations effectively and identify hidden opportunities. Consider the way you have set up your concept as an organization to locate potential savings. Some clients my firm works with lease their stores, and additionally lease their employees from a PEO. Property insurance and Worker's Compensation insurance are built into these costs. As a result, the restaurants utilizing this strategy gain greater levels of control and substantial savings by carving out those coverages and then negotiating from there.
Manage your claims. America may be the land of the frivolous lawsuit; if so, the restaurant industry is undoubtedly the epicenter. Is there anything more frustrating than getting served with a lawsuit and being clueless as to the circumstances underlying the claim? Of course, the lawsuit is usually from some mail-order lawyer who has a really “clever" saying like, “We take names, then kick butt!"
Executing prompt claims reports and tracking incidents are necessary components of solid claims management. You will also reduce claims costs. Properly set up these processes and procedures to protect your organization from potential surprises and minimize claims issues. Without doing so, you can become a target. Also, create special instructions for claims handling that dictate what claims will be paid. This allows you to avoid disrupting ongoing business in the event that a major loss occurs.
Choose the right partner. The commercial insurance industry can be a confusing and misunderstood place, and unfortunately there is plenty of incompetence floating around. Even worse, the brokers’ commissions in commercial insurance are typically set up in such a way that you essentially pay the same price for a Filet Mignon as you do for a burger! However, my experience in the industry has taught me that lawyers, restaurant executives, and owners do not have the time to truly how commercial insurance really works.
What you need to do is team up with an insurance broker who has industry expertise, understands the market, and has a track record for consistent success. Do your due diligence and talk to references and restaurants the broker personally services. Keep in mind that you may hear something like, “We handle Brinker, " but the actual team doing the work is in another office. Also, remember that your broker does not necessarily need to be local. They do, though, need to be active in the industry to be cognizant of industry-specific issues, be creative, and have some leverage to negotiate the best deal for you. Choosing a great broker can increased the bottom line by $25,000 per location, contribute solutions across an organization, and enhance a balance sheet on both micro and macro levels.
Finally, when it comes to choosing the right broker, make sure that he or she is backed by a good team. No one person can effectively handle all of your commercial insurance needs. Choose a team that provides great service, handles claims and loss control, and has alternative risk expertise.
Have a renewal strategy. Do not let yourself get caught in the insurance cycle. If you work the cycle, it cannot work you. How can you effectively work the cycle?
As a general rule, renew early. You do not want to be held hostage by last-minute quotes. We are all familiar with the unappetizing terms presented in renewal options the day before renewal. You want to be able to have the quote early enough to be reviewed. Make sure that your broker allows this to happen. This way, if the terms are not to your liking, you have the luxury to look elsewhere.
The tips and hints listed above should offer some insight into what can otherwise be a confusing and frustrating endeavor. With that said, realize that there are always significant savings available in every aspect of every restaurant 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 restaurant and real estate business.
Morgan Ryan , ARM
Articles written by Morgan Ryan