2021 Restaurant Insurance Outlook

The U.S. restaurant industry has a loaded plate as 2021 picks up steam – especially from an insurance and financial protection point of view.

Dealing with a global pandemic and resulting business interruptions and locks downs, working hard to ensure employees are compensated as much as possible, facing down business liability issues – all were big issues in 2020 and are expected to be so in 2021.

Additionally, all of the above fall into a “good news, bad news” scenario for the upcoming year.

“The prospects for fine dining and sit-down restaurants are going to remain strained for all of 2021,” said Doug Groves, founder at Program Insurance Group, in College Station, Tex. “On the other hand, fast food, or any delivery food, is going to still have a banner year in 2021.”

A COVID vaccine campaign, successfully implemented, will help. That process is going slowly, much to the restaurant sector’s dismay.

“Consumers can go out more often in 2021, but we’re just going to see capacity down for the rest of the year until the vaccine has been administered to a large portion of the population,” Groves added. “Even though restaurant staff in many cities will be in earlier waves to receive the vaccine, traveling professionals will be further down on the vaccine waitlist.”

“Also, all bets are off if the new administration entertains further shutdowns,” he added.

An Expanded Outlook

How do other industry experts see the restaurant and insurance landscape this year? Pretty much the same outlook as Grove offers – at least for the first half of the year.

“The prospects for the restaurant industry in the first six months of 2021 are not good,” said Izzy Kharasch, president of Hospitality Works, a food service and training firm in Chicago, Il. “States continue to extend the dates for the closure of indoor dining and expanding closures into outdoor dining as well.”

Even as more people begin to get the vaccines people will become more confident in going out to eat and drink. “That said, restaurants will need to continue to be vigilant in their COVID sanitation practices in order for customers to trust dining in their establishments,” Kharasch noted.

Insurance Impact: Collect Less, But Pay More

The insurance industry’s business model – collect from all and pay out to a few – will certainly continue to be tested in 2021. In fact, this year it seems that model has been turned upside, and that’s not good news for insurers and restaurant owners.

“The problem with insurance is you cannot ensure things or events that happen to all folks in difficult times,” Grove said. “It violates the structure of insurance at its heart.”

These days, Grove noted, insurance is taking a little from all to pay the claims of a few. 

“Pandemics happen and few are immune, and no insurance can pay all the claims. Insurance will begin to have limitations or exclusions clearly spelled out for COVID-19 and related issues,” he said. “Laws being passed to limit or exclude liability will help restaurants recover more quickly, but as of today, no such laws have been passed.

Kharasch agrees with that sentiment, and adds a few more qualifiers to the 2021 restaurant insurance and financial picture. These issues should be at the top of that list:

“Acts of God” in play

In the future, more and more restaurants will be asking for a “Force Majeure” or “Act of God” clause to be part of their package. 

“Restaurants will be putting Force Majeure clauses into their leases,” Kharasch said. “For the most part, the problem with a pandemic is that it does not fall into specific areas of current insurance coverage.” 

As an example, Kharasch cites business interruption insurance. “Typically this focuses on physical property loss such as fire, flood or a natural disaster which a pandemic is none of these,” he said. “Also, if a restaurant is down 80-plus percent business-wise and it has to try and save itself and their employees by operating a carryout business, they may not be eligible for insurance because they are still operating.”

On COVID coverage payments

Many restaurants will be filing for insurance based on COVID losses. “We will have to wait and see what insurance companies will pay on and where they will draw the line,” Kharasch said.

Physical loss of property

While lockdowns did and do force closures, those closures don’t generally limit a restaurant’s ability to offer carryout or delivery services. “However, the restaurants that are in lockdown and don’t have the ability to do any type of service at all may have a claim because of physical loss of property,” he added.

The Takeaway on the Restaurant and Insurance Outlook for 2021

In July of 2020, it was reported that 16,000 restaurants had closed permanently because of the pandemic. In August of 2020, that number surpassed 32,000 restaurants. 

“I believe that when all of the numbers are tallied more than 60 percent of restaurants will have closed not just because of COVID but because of how city and state governments have mishandled this crisis,” Kharasch said. “Unfortunately there will be many more closings in the first quarter of 2021.”

There is, however, a light at the end of the tunnel.

“As I tell my clients, if they can just make it until June, things will begin to turn around and we will be looking at a successful 2021,” he said.