The adage “If it ain't broke, don't fix it” certainly applies toMidlantic Agencies. Since its founding in the early 1960s, theagency has specialized in insurance for the food and beverageindustry. That's where the focus remains today, with restaurantsand taverns accounting for at least half our business.

The agency was started by my father, Mike Grasso, and hispartner, Jim Truback. In the 1980s, Robert Henkler joined theagency. Today, his son, Thomas Henkler, is the agency's president,and I'm vice president. We do business in New Jersey and New York.We write anything in the food and beverage industry, fromluncheonettes to fine-dining restaurants, from corner bars tonightclubs. In this article, I'll discuss the techniques–fromprospecting to placing business–that have helped us succeed in thissegment of the market.

Prospecting

No single approach to prospecting or marketing predominates atour agency. Rather, we use a variety of techniques, including thefollowing:

Referrals: Asking for referrals is a key part of ourroutine. The easiest way to get a new account is to have asatisfied client recommend you to a friend. We ask for referralsafter we close the sale. Some new clients are hesitant to providethem but become much more willing to do so after they've been withus a year and we've had time to prove ourselves. Consequently, ourvolume of referrals from clients goes up in the second and thirdyears they are on our books.

Telemarketing: For about 20 years, we had our owntelemarketer. When she retired last year, we decided to use anoutside telemarketing firm. One reason is because some carriers, asan incentive to do business with them, contribute to ourtelemarketing costs. The firm we use sets appointments for us andprovides basic information about prospects, including expirationdates. We've been closing about 40% of these leads.

Mailings: We're pretty low-tech. We make our ownmailers–one-page letters that we print on brightly colored paper,so they stand out. The gist of the letter is that the recipientshould select an agency that has specialized in their industry for40 years. We use the Internet to obtain leads. Rather than purchasethem from specific sites, we just use search engines to compile ourown lists.

Letters sent to both taverns and restaurants often promoteliquor-liability insurance. Those sent to taverns only also promoteassault and battery coverage. That's a major selling point for us,since there are only a couple of markets currently offering thecoverage to taverns in New Jersey.

Target marketing: One of our producers, who has beenwith us for more than 10 years, focuses on Chinese restaurants. Shewas born in China, where she worked as a teacher. Robert Henklerand his wife, who was in the importing business, met her there andlater helped her immigrate to the U.S. We hired her with theintention of having her become a restaurant-insurance producer.Once she was licensed, I began taking her on appointments. Sheproved to be a quick learner. While restaurants still make up themajority of her accounts, she now also writes many other types ofcommercial-lines accounts in the Chinese community.

Association involvement: I'm a member of the New JerseyLicense Beverage Association. From time to time, the association'sindividual chapters invite me to speak to their members aboutinsurance or risk management.

Regardless of how we come in contact with prospects, one offirst things we request is a copy of their current policies, so wecan offer them apples-to-apples quotes. Most prospects will providethe policies, but some are reluctant. In an effort to give usinformation from their policies without disclosing payment terms,some try to read their policies to us. This rarely works well. Whenwe ask them for information about their current property coverage,we may notice they are looking for it in the policy's liabilitysection. Eventually most give up, especially after we tell themthey can just strike out the prices on the copies they give us.

When examining coverage, I look for what clients don't have, aswell as what they do. Among the coverages I occasionally findmissing are crime insurance, and assault and battery insurance.When I bring the latter gap to a restaurant owner's attention, hemight ask, “I'm not a tavern; why do I need 'fight' coverage? Ireply: “That's how many owners feel–until a fight happens in theirplace. You could host a wedding reception–or even just a birthdayparty–at which two family members wind up having a physicalconfrontation. After it's over, they're not going to sue eachother–they're family. Instead they're going to sue the restaurant.”Such scenarios often persuade restaurant owners to regard the lackof assault and battery coverage as the serious omission it is.Depending on a restaurant's characteristics, we may be able toplace it with a market that automatically includes assault andbattery coverage in its package policy.

Loss prevention

For restaurants, loss prevention starts in the kitchen, wherepractically all dining establishments have fire-suppression systemsmade by Ansul or other manufacturers. The modern systems use “wet”chemicals that are effective at putting out fires arising from thehotter-burning oils that most establishments use in their deep-fatfryers these days. Many establishments, however, still have older,less-effective dry chemical systems. While ordinances and laws inmany towns and states now require wet systems, existingestablishments with dry systems typically have been “grandfathered”in. Nonetheless, restaurants with the older systems may have toreplace them in the not-too-distant future. That's because drychemicals increasingly are becoming unavailable, as vendors move towet systems. Meanwhile, the dry systems have to be recharged everysix months. At some point, recharging may no longer be anoption.

Insurers expect restaurants to have an outside servicesteam-clean all their kitchen equipment on a quarterly basis, toensure that grease does not accumulate. They also must have theirAnsul systems and fire extinguishers checked regularly. They expectthe premises and any parking lots to be well-maintained too. Toobtain or maintain coverage, restaurants may have to repairsidewalks, and seal driveway or parking-lot cracks. They also mayneed to move garbage or trash containers. Insurers don't want themplaced against buildings; if a fire starts in a container, anadjacent restaurant may go up as well.

While fires often lead to the largest losses for restaurants,general liability “trip and fall” claims are probably the mostfrequent. To prevent them, restaurants are expected to keepcarpeting, hand rails and interior lighting in good condition.Falls on dance floors are a great concern. Establishments that havethem often have to seek coverage in the E&S market.

Coverages

Restaurants are written either on a commercial package policy ora businessowners policy. The BOP is the better form and is offeredonly to better risks. Among other things, it provides 12 months ofbusiness income coverage on an actual loss-sustained basis.Furthermore, most carriers will also write an umbrella with“follow-form” coverage over the BOP. Before they will offer BOPs torestaurants, most carriers want to see “wet” Ansul systems, atleast three years of experience, strong financial statements and nomore that 30% of receipts coming from alcohol sales.

One hot topic right now is employment practices liability. Yearsago, the exposure mainly was a concern to large employers. Today,many small and midsize businesses–including restaurants–also areconcerned about claims arising from sexual harassment, agediscrimination, etc. We offer clients stand-alone EPLI policies tocover this exposure. Despite the publicity EPLI claims havereceived, the product remains a tough sell. I'd say about 5% of ourclients buy the coverage–but 10 years ago, none did. In time, Ibelieve EPLI will turn out to be like liquor-liability coverage. Itwasn't all that easy to sell 25 years ago; now no alcohol-servingrestaurant or tavern operates without it.

Placing the business

Most insurance companies will write a broad spectrum ofrestaurants. They may have their niches, however. Some only writerestaurants with “wet” Ansul systems. Others will accept risksprotected by the older, “dry” systems. That makes it easy for us topick a market for a given risk. We represent the Hanover, OhioCasualty and the Hartford. We also work with specialty markets,including First Georgia Casualty, which we access through RCAInsurance Group, a managing general agency.

In addition to wanting information about a restaurant's fireprotection system and the experience of the owners, allunderwriters want to see loss runs. I try to get hard-copy lossruns going back at least three years.

In regard to business practices, underwriters want to know thehours of operation. Sometimes they want to know the type and costof drinks served–particularly at bars. Do they have “shooter girls”who walk around with “test-tube” shots? Are they selling dollardrinks?

Resorting to the E&S markets

Underwriters also want to know about entertainment and dancing,which are difficult risks to cover. Some establishments may operateas family restaurants all day. Then at 9 p.m., they move sometables aside, create a dance floor, and bring in a DJ or musicians.That puts them in a totally different underwriting classification.Most admitted carriers will reject establishments that have liveentertainment. Invariably, we must place them with E&S markets,which usually provide little or no coverage for assault andbattery. Increasingly, E&S markets also are including GLdefense costs within the coverage limits. You're also looking atdeductibles on general liability and liquor liability coverageranging from $1,000 to $10,000. In contrast, BOPs written byadmitted carriers usually have no liability deductibles at all.Relatively few of our restaurants go into the E&S market. About20% of our bars and taverns–mainly those providingentertainment–wind up there.

Restaurants and taverns that apply for insurance generally mustauthorize insurers to check their credit status. Carriers mainlyare looking for establishments that chronically are late payingtheir bills, that have filed for bankruptcy or that have been hitwith judgments, tax liens, etc. Particularly if a carrier would bewriting a large amount of property insurance for such a business,it might well decline the risk because of the “moral” hazard such acredit history indicates.

The food and beverage business can be volatile; there is a fairamount of turnover in the restaurant business, so it is importantto look out for the interests of our carriers. Of course, it's alsoimportant to take care of our clients, which we do by helping themimprove their risk characteristics and finding appropriate marketsfor them. By doing right by both parties, our agency has prosperedfor more than 40 years, and we expect success to stay on the menufor years to come.