The insurance market overall has experienced softening over the past year, meaning that capacity is available and there has been a downward shift in rates. Depending on market segment, loss history and CAT exposure, most clients saw rate decreases in 2015, some as high as 20%. By taking proactive risk management measures and working closely with your insurance advisor, the overall cost of your insurance spend should hopefully not increase moving into 2016 and in many scenarios will decrease, IF you have a favorable loss ratio. This is beginning to look like a buyer’s market for restaurants that have not experienced any costly claim scenarios. However, if your loss ratio history is less than favorable, there is still hope. A proper risk management program is vital to help prepare for any future losses, help offset your history and present you in a more favorable light during the underwriting process.
The hospitality industry can be a risky business if its potential liability exposures are not properly identified and addressed prior to a claim being made. Insurers are aware of the high costs involved with restaurant/food service-related claims and keep this in mind when evaluating a potential policy. Owners are getting hit with claims and because of this are facing insurance increases even during a favorable market, leading them to examine what could have been done to prevent the situation in the first place. Effective risk management enables you to proactively prepare for potential losses, provide a safe environment for your employees and patrons, while securing better pricing on your insurance.
When it comes to your restaurant, a risk can be classified as any occurrence that could have a negative impact on business. Your first step is to identify each risk and then assess the likelihood of it occurring along with its potential consequences. Some risks are prevalent in most organizations. Other risks will be unique to your business and the services you provide – for example liquor liability, slips and falls, and food-borne illnesses to name a few. To get a complete picture of your risks, review your past accidents, insurance claims, and your industry’s loss statistics.
The most obvious risks associated with a business are those concerning its premises. An unsafe work environment can lead to any number of costly problems. The first priority should be ensuring that the premises are safe and secure. Physical premises are also vulnerable to natural disasters, including fire and flood. Investing in insurance coverage for these incidences will help your business stay on track in the event of costly damage to its facilities.
While it may be impossible to identify every potential threat to a business, a risk assessment process can help you identify future problems and minimize potential costs in advance.
Once you have identified your risks, you need to identify which ones are most likely to happen and which ones would have the greatest, adverse impact on your business. Prioritizing risks can be difficult, but assigning a monetary value to each one can help simplify the process.
Implementing your plan
Once risks are prioritized, it’s time to begin developing your strategies to manage them, starting from the most important. Once a response plan is in place, you’ll need to ensure that it’s effectively implemented.
There are three major risk management strategies that you can employ:
Avoidance – Eliminate an activity, service or practice that puts your business at a level of risk that threatens its future viability. Certain business activities may prove too costly when compared to the benefits that would be associated with that activity. In these instances, it may be better to pass on the opportunity and the potential earnings to avoid the risk of significant losses.
Transfer – Investigate opportunities to transfer the risk of loss to other parties. Passing the risk of financial loss to an insurance company is the most common form of risk transfer. It’s very important to work with your insurance broker that can review your risks and risk management plans on an annual basis to ensure that your insurance coverage meets your need. As time goes on, you may discover that you are over-insured in some areas and under-insured in others.
Mitigation – Since it may be impossible to transfer risk entirely to a third party, determine what steps can be taken to lessen the impact of losses should they occur. Ways to mitigate risk include developing policies and training programs that reduce losses. If your organization can demonstrate a downward trend in losses, talk to your insurance broker about communicating your efforts to your insurer so you can be rewarded with reduced insurance premiums.
After reviewing all the possible options and looking at your risks, decide which of the possible risk management techniques best strikes a balance between effectiveness and affordability.
Keep accurate records to demonstrate that you are doing everything you can to reduce risk and react to emerging risks. It shows your insurer that you are committed to risk management and have a history of implementing well thought out plans.
Risk management is a way of thinking that must permeate the whole organization from management to waitstaff. Making it a part of all decision-making processes is important to creating a culture that values risk management. In turn, this will also help you achieve lowered rates while shopping for insurance. Remember, the market is beginning to flatten and soften for some vital coverages, this is the perfect time and opportunity to reduce your overall spend.
Robert Fiorito serves as Vice President, HUB International Northeast, where he specializes in providing insurance brokerage services to the restaurant industry. As a 20-year veteran and former restaurateur himself, Bob has worked with a wide array of restaurant & food service businesses, ranging from fast-food chains to upscale, “white tablecloth” dining establishments.
For more information, please visit www.hubfiorito.com