An Insider’s Advice About Restaurant Insurance: Six Ways to Reduce Your Costs

Restaurant insurance is complicated. Just as owners have to play many roles in management, marketing, and menus, their insurance has to protect their finances, patrons, and employees. And who has the time to read a 100-page insurance policy?

According to a recent survey by Wakefield Research, 90 percent of business respondents said they lack confidence that their business is adequately insured. Half the respondents (53 percent) said the most significant barrier to obtaining insurance was understanding what coverage they needed to protect their business.

Here are some insider tips to help avoid overpaying for coverage, prevent claims that drive up premiums, and make sure your business is covered properly.

1. Safety Measures Protect Employees and Your Finances

Strong safety measures are essential to reduce claims – especially for workers' compensation. Ensure that all safety precautions are being followed, such as having a non-slip mat behind the bar or counter, servicing stove hoods, and inspecting fire extinguishers annually. Security devices such as surveillance cameras and central station alarms also help reduce premiums. 

Be sure to train employees properly about injury prevention, especially if they are new or inexperienced. "Restaurant workers can face high-stress levels, especially with staffing shortages," said Matt Zender, Senior Vice President, Workers' Compensation Strategy at insurer AmTrust. "Restauranteurs should lean on their onboarding experience to ensure employee safety."

Inexperienced staff that are not adequately trained can also cause foodborne illnesses. According to the Johns Hopkins University Bloomberg School of Public Health, a single foodborne outbreak can cost a restaurant lost revenue, fines, lawsuits, legal fees, and insurance premium increases.

In addition to safety measures, restaurants can avoid increases in workers' compensation costs by ensuring employees are correctly classified, and payroll is accurately reported. A careful review ensures the business pays the minimum amount necessary to enforce the policy. 

2. General Liability Insurance Doesn't Cover Everything 

All general liability insurance policies have exclusions. Owners should consider added coverage for liquor liability, food spoilage, or equipment breakdown. These are often excluded from standard policies and be potentially costly. If a restaurant has a refrigeration malfunction, for example, it can be an expensive out-of-pocket cost if they do not have spoilage coverage.

In the restaurant industry, general liability policies often have exclusions for assault and battery. If the coverage you are offered has a low premium, make sure that you have that coverage. That could be a significant and costly difference when comparing one general liability policy to another. 

If you are a family restaurant that is not open late at night, that may not be a big concern. If you are a nightclub open late hours with high liquor to food sales, then assault and battery coverage is something you want to maintain. If you are hiring security staff, you want to make sure you have a reputable security company that has its own insurance coverage. 

3. How to Protect Your Business if an Employee, Patron, or Job Applicant Sues You

Employment Practices Liability is another general liability exclusion. Even before the pandemic, the hospitality industry had more employment discrimination complaints with the U.S. Equal Employment Opportunity Commission (EEOC) than any other industries. Plus, the EEOC has more harassment complaints from restaurant industry workers than any other business sector. 

In 2022, the U.S. Department of Labor's Wage and Hour Division brought over 4,000 enforcement actions against hospitality employers, recovering over $30 million in back wages for over 25,000 employees.

Employment Practices Liability Insurance (EPLI) coverage can protect businesses from employee-related claims such as discrimination, wage and hour disputes, or sexual harassment, whether the claim is against an owner or another employee. Legal fees alone can add up to tens of thousands whether the case is won or lost.

4. Even Minor ADA Violations Can Lead to Large Lawsuits

Owners need to comply with the Americans with Disabilities Act (ADA). Ignorance of the law is not a defense if the business is sued or fined. General liability insurance would apply if someone were injured, but it would not cover the cost of a fine if the restaurant is found at fault. Depending on your policy terms, EPLI insurance may cover ADA lawsuits.

One area that may be overlooked and lead to a lawsuit is website compliance. Check with your website designer to make sure you are compliant with ADA standards.

5. Cybersecurity Is a Mission-Critical Business Risk Often Overlooked in Food Service … 

As restaurants' systems transform digitally, new components to systems make them more vulnerable to cyber-crime," according to a 2022 report by consumer market research company GlobalData.

Computer systems can be compromised whether a restaurant has an older or brand-new setup. Cyber insurance coverage helps owners protect their businesses if they are hacked. 

Cyber insurance can cover recovery costs, including business interruption costs, ransomware protection, plus support to prevent attacks from happening. Most General Liability policies do not include cyber insurance coverage. 

Additional coverage options can include notification of your customers in the event their identity is compromised and repairing damaged computer systems. If a cyberattack results in a lawsuit against you, your coverage can include attorney and court costs, settlements and court judgments, and fines. 

The type of cyber insurance you need depends on the number of customers you have, regulatory requirements, and how your restaurant computers are used to conduct business.

6. If Your Business Changes, Let Your Insurer Know so You Don't Overpay or Go Unprotected

Owners need to be sure their property coverage keeps up with their investment in the business. If a restaurant has been renovated, its property coverage may not reflect that investment or consider the cost of inflation. It may have cost $100 000 to do a renovation ten years ago, but it will cost more to replace that today if there is damage.

Restaurants often overpay for their general liability insurance because they are not rated properly. Insurance carriers may increase their premiums because they don't receive accurate annual information. 

An annual review is one of the best ways to keep premiums down. An independent insurance agent has access to many carriers instead of just one. If you have a premium increase, accessing different carriers helps you get the best available coverage at the lowest available price.

Restaurant premiums may be mistakenly based on a much higher revenue than actual revenue. Another cause of overpaying premiums is that food to liquor sales are incorrectly calculated. The higher the percentage of liquor sales, the higher the cost of insurance. If your restaurant revenue is derived more from food than liquor, then your premium should be less than a venue that's primarily liquor sales. 

Should you report every claim? Some restaurant owners feel that it is the insurance carrier's responsibility to cover any type of loss. It may be best to pay it yourself if it is a small claim just slightly above your deductible. You may submit a small claim, and a couple of months later, a larger claim happens. Two claims during one policy period will affect your renewal. 

To be clear, it is important to submit claims when it is appropriate. That's what insurance is for – to protect you. But it is also important to be cautious about the claims you submit. 

The best way to reduce your insurance costs is to take measures to avoid claims and to make sure the insurance you have covers the potential claims you may have based on your specific operation.