| The insurance industry enjoyed record profits of $60 | | | | of your risk will allow you to enjoy the benefits |
| billion less than two years ago. In the wake of these | | | | available in the market regardless of what cycle it is |
| prodigious returns, the commercial insurance market | | | | in. |
| was flooded with hundreds of millions of dollars worth | | | | Here are three additional questions you should be |
| of capital. This created an increase in the amount of | | | | asking that your broker might not be answering |
| carriers, as well as a greater capacity to take on risk. | | | | adequately, or at all: |
| Ultimately, the influx of capital into the insurance | | | | 1) What is my renewal strategy? Keep in mind that |
| market has resulted in an insurance environment that | | | | you want to work the commercial insurance cycle, |
| is extremely soft, with prices falling quickly. For | | | | not the other way around. In soft markets, it is |
| restaurant owners who approach this soft | | | | sensible to cancel a current policy in an effort to |
| commercial insurance market correctly, some of the | | | | capitalize on lower rates. However, when the market |
| largest premium decreases in years are available. | | | | hardens, you may want to negotiate 18-month or |
| To understand why such attractive premiums are out | | | | multiyear rate terms. You have the potential to |
| there, understand a couple points: | | | | reduce your restaurant insurance costs by 20-40% |
| First, insurance pricing is cyclical. The inflated prices | | | | over a five-year period simply by paying close to |
| simply cannot be maintained in the new commercial | | | | attention to insurance cycles and acting appropriately. |
| insurance environment of 2008. A major reason for | | | | 2) Am I overinsured? You have little to no chance of |
| this is that most commercial insurance companies are | | | | losing every building you insure in any one single |
| public companies. Thus, their shareholders demand | | | | event. However, some people continue to purchase |
| growth. In order to grow, prices must be reduced to | | | | coverage for that very unlikely occurrence. If you |
| entice new clients and retain current ones. In addition, | | | | have ten $1 million buildings in a state, you do not |
| insurance carriers must enter new areas that they | | | | need a $10 million insurance policy. This is wasted |
| have no been active in historically. These carriers are | | | | coverage and can be extraordinarily costly, especially |
| then forced to write new lines of the coverage for | | | | in a hard market. Your broker should run a Probable |
| industry segments like foodservice, hospitality, and | | | | Maximum Loss to determine what the appropriate |
| franchise programs. | | | | loss limit should be. Depending what your locations |
| The second point to understanding the reason for | | | | are, you realize that you only need between a $2-$3 |
| the availability of lower premiums is that in the world | | | | million policy to cover the $10 million in buildings. |
| of commercial insurance foodservice and hospitality is | | | | 3) How can I effectively manage my loss history? A |
| a niche area. Consequently, there is a limited amount | | | | good broker will assist you in this endeavor, but most |
| of insurance carriers competing against one another | | | | do not even mention it. Understand that your |
| to write a restaurant insurance account when the | | | | insurance losses stick with you for five years, |
| market is stable or hard. Now consider the reality of | | | | regardless of whether you have two locations or |
| 2007 and 2008. You may have found that the | | | | 1,000 locations. Commercial insurance companies use |
| number of carriers seeking your business doubled. | | | | these past losses to help them predict what your |
| The impact of this insurance market on niche industry | | | | future losses may be. This can have a tremendous |
| segments like foodservice and hospitality can be | | | | effect on your insurance prices. If you are like most |
| exponentially greater than what is happening in the | | | | companies, you have limited knowledge of the details |
| standard insurance market. This large supply increase | | | | behind the insurance companies' loss runs. In essence, |
| as demand stays static leads to the falling prices that | | | | you are still being charged for a claim that occurred |
| restaurant owners are now finding. | | | | three or four years prior. Have them audited to be |
| Why is it that buyers are usually the last people to | | | | sure that details and numbers are accurate. |
| realize the state of the commercial insurance market? | | | | One point that cannot be overstressed is the |
| Most policies only get renewed one time each year. | | | | importance of choosing the right broker to partner |
| The can lead to an information gap because the | | | | with. Unfortunately, most brokers simply do not |
| reality is that buyers rely on their brokers to let them | | | | handle enough restaurant insurance claims to maintain |
| know this critical information about the direction in | | | | up-to-date knowledge on the insurance market for |
| which the market is headed. With markets shifting | | | | the industry. Obviously, the firm you partner with |
| course substantially, and quickly, insurance buyers | | | | must understand your business, but you need to also |
| sometimes are not made cognizant of the shift until | | | | be confident that they also are competent in |
| nearly a year later. | | | | understanding the environment and knowing the |
| Furthermore, select industry groups, brokerage | | | | markets. |
| houses, and insurance carriers themselves usually are | | | | Keep in mind that these people are your |
| the ones formulating reports about the insurance | | | | representatives. You should choose them as |
| industry. Oftentimes, these reports can lag six | | | | meticulously as you would choose your legal |
| months behind. Rarely do they portray a precise | | | | representation. Try not to be a firm's lone client, but |
| picture of the current environment in the market. | | | | also make sure that you are not a "small fish in a big |
| However, consumer expectations are driven by | | | | pond." A great broker will keep you ahead of your |
| these reports. Many large companies who settled for | | | | competition, keep you safe, and ultimately add to |
| a 10% pricing reduction will find out later than they | | | | your bottom line. |
| could have gotten reductions of 25-30% instead. | | | | You should also make every effort to meet your |
| There is no doubt that this inefficiency is the Achilles' | | | | insurance carriers. Have a relationship with them, in |
| hell of the commercial insurance industry, especially at | | | | addition to your broker. The carriers need to know |
| a time when the industry seems to be cannibalizing | | | | you and understand what expectations you have. |
| itself. For foodservice and hospitality companies it is | | | | Not to mention, being on a first name basis will be a |
| also a situation that should be taken advantage of, | | | | big help if you ever need a favor; inevitably you will |
| especially in light of the fact that it will eventually | | | | at some point. |
| swing the other way. | | | | Finally, make sure you are maintaining open dialogue |
| While we are currently in a buyer's market, do not | | | | with both consultants and internal employees |
| allow yourself to become careless when it comes to | | | | regarding customer-and-employee injury issues. You |
| risk management. You can keep your insurance | | | | have to be tough on claims; but remember that |
| expenses at levels 25-40% lower than your | | | | communicating proactively and listening empathetically |
| competition by paying close attention to details and | | | | can turn cut fingers and strained backs into loyal |
| working with an expert. Controlling the basic elements | | | | employees and lifetime customers. |