For the past year and half, we’ve been on a downward slope in the commercial insurance industry. 2006 saw profits at an all-time high for the insurance industry. These record profits led to a flood in capital into the market for insurance. Many new insurance companies were also created and started operations, increasing competition and supply. We all know that prices fall when there is less demand than there is supply. For the immediate future, the trend is to continue the decline in insurance prices for Liability, Property, Auto, and Workers Compensation. In the past year and half, restaurant owners have seen their rates for insurance decrease by 15-40%.
Is there an end in sight for the carriers? It is possible, once the carriers start paying more in claims and operating expenses than they make in premium dollars. This cyclical market will begin to harden once the insurance companies see red again in their bottom lines. The process can be accelerated by hurricanes that cause large property damage or catastrophes like 9/11. Increased prices in the restaurant industry can be caused by more litigation, especially large ones pertaining to Workers Compensation, Foodborne Illnesses or Liquor Liability. There is always the “claim du jour”, which we don’t know about. Price changes could result from class actions arising out of FACTS, or any privacy suit resulting from leaving credit card information on sales receipts.
There is one certainty: The hard market will come back. It doesn’t matter if market rates are decreasing or increasing, but focusing on risk reduction and loss reduction can help you reduce costs in any market environment. Given the current economic state, cutting significant costs can save you a few jobs in the future. Remember that sometimes the best defense can be a great offense.
These helpful tips can help you improve your insurance situation.
Location, location, location. Any successful restaurant entrepreneur must have the ability to analyze situations effectively and identify hidden opportunities. Look at the way your organization has been set up to find potential savings. My firm has clients who lease their stores and also lease employees from a PEO. These costs include property insurance and worker’s compensation insurance. Restaurants that use this strategy can make substantial savings and have greater control over their costs.
Manage your claims America may be the land of the frivolous lawsuit; if so, the restaurant industry is undoubtedly the epicenter. There is nothing more frustrating than receiving a lawsuit and not being able to understand the claims. The lawsuit usually comes from a mail-order attorney who is very clever and says things like “We take your names, then kick butt!”
Solid claims management requires prompt reporting and tracking of incidents. This will help reduce claim costs. You can reduce claims costs by setting up the right processes and procedures. If you fail to do so, your organization could become a target. You should also create instructions for claims handling to specify what claims will be paid. This allows you not to disrupt your ongoing business in case of major loss.
Find the right partner The commercial insurance industry can be a confusing and misunderstood place, and unfortunately there is plenty of incompetence floating around. Worse, commercial insurance brokers often make the same amount for their commissions as for a hamburger. But, I have learned from my experiences in the industry that lawyers, restaurant managers, and owners don’t have enough time to really understand how commercial insurance works.
All you have to do is find an insurance broker with industry knowledge, who understands the market and has a track record of success. Ask for references from the brokers who have worked with restaurants. You may hear, “We handle Brinker,” when the actual team is located in another office. Your broker does not have to live in your area. To be able to make the best deals for you, your broker must be involved in the industry. A great broker can increase the bottom line by as much as $25,000 per location, provide solutions to multiple organizations, and improve a company’s balance sheet at both the micro and macro level.
When it comes to selecting the right broker, ensure that they are supported by a team. One person cannot handle all your commercial insurance needs. A team that offers great service, claims management, loss control, and alternative risk expertise is the best choice.
Develop a strategy for renewal. Do not let yourself get caught in the insurance cycle. It will not work for you if it is you who works the cycle. How can you efficiently work the cycle?
You may have to cancel your current policy in order to get lower rates in soft markets. It will all depend on how much premiums you have paid.
Additionally, you may be able to make more money by lowering premiums halfway through the term. This could allow you to release substantial escrow funds currently being held. Additionally, you can reduce the time and sting of the next market by increasing terms in the soft market.
Pay attention to the time of year that your policy is due for renewal. When insurance companies want premiums to cover their costs, it is possible to negotiate lower rates by negotiating rates towards the end of each quarter.
If you own a coastal property, it is important to renew your home before the excitement of a new hurricane season.
It is a good idea to renew your contract early. Last-minute rates are not something you want. We are all well aware of the unappetizing renewal options presented the day before renewal. You should be able to get the quote quickly enough to review. This should be allowed by your broker. You can also choose to change your mind if you are unhappy with the terms.
These tips and hints should help you navigate what can be confusing and frustrating. There are significant savings in all aspects of every restaurant in the country. Insurance and risk management are not the only things people think of.