We've been writing insurance for restaurants, bars andnightclubs for 30 years. To say that this market niche may not befor every agent, broker or insurance company is an understatement.However, we've found this specialty to be entirely fascinating andspecific to our skill sets and agency personality. Assuming there'sa good fit, we try diligently to acquire as many quality restaurantclients as we can efficiently handle in the San Diego area.

There have been two keys to our success. The first is knowingthe restaurant business intimately, and having an awareness of thecountless challenges restaurateurs face. We speak their languageand “feel their pain,” as it were. The second is having a passionfor professionalism, which doesn't mean we live to sell insurance.We don't sell anything; we help people buy. Our mission is toeducate our clients so they can make informed insurance-buyingdecisions. We're intuitive and plan ahead with regard to ourclients' needs.
In this article, I'll explain how those two philosophies permeateour agency. Far from being methods peculiar to the restaurantniche, mastery of a market domain, coupled with a commitment toexcellent service, leads to success, whatever business you'rein.
Across the hall from the first insurance agency I worked for wasthe San Diego Tavern and Restaurant Association, now known as theFood and Beverage Association of San Diego County. The agencyoffered a workers compensation program for the association members,although it was relatively fallow when I started. Being a newproducer, I picked up the workers comp ball and ran withit–essentially across the hallway. I was soon involved with morefood and beverage accounts than I was with any other type ofbusiness.
I brought that book of business with me when I joined Alcott in1984, and it has grown into one of our three main niches,accounting for 30% of our premium volume. We have over 300 bar,nightclub and restaurant clients, with restaurants comprisingtwo-thirds of that number. I've enjoyed a long relationship withthe executive director and staff of the association.
Whereas many agents and brokers in this niche prefer to focus onthe high-end business–the “white tablecloth” restaurants–we run thegamut, from the mom and pops up to fine dining. When theassociation sends me a small fast-food restaurant to contact, Itake care of the account just as I would a much larger client. As Isee it, the most valuable thing I can offer the association is myintegrity, so we treat each of their members as a valued client,and all of them have access to our professional insight andwisdom.
After many years in the business, most of my leads now come viareferral. When I was younger, however, I employed a number ofmethods for prospecting, cold calling among them. Every Tuesday andThursday a local business paper would publish leasing notes, andwhenever I saw a restaurant of interest I'd call the leasing agentfor contact information. I also participated in trade shows andsent mailers. Finally, knowing that health permits were the firstbusiness documents pertaining to a new restaurant venture that weremade public, I made frequent trips to the health department tosecure lists of businesses issued a permit. Then I started makingcalls.
In addition to using my association connection, I've spentconsiderable energy developing “centers of influence.” I brokebread with many a CPA, real-estate broker, business attorney andanyone else who was affiliated with the industry. Today I have theconfidence of 30 to 40 colleagues who service restaurants. Weexchange leads. If I get one good lead in a 12-month period fromeach of my centers of influence, I'll have a good year. Also, Ibelong to a smaller lead group of four vendors. We meet quarterlyto discuss the industry in general. Our trust is inherent andreferrals flow. My clients appreciate introductions to suppliersthat can truly help them. It's a value-added service thatdistinguishes me from the competition.
So now, along with one or two others in San Diego County, I'mrecognized in certain circles as the “go-to” guy for restaurantinsurance. I've always believed that once you're referred to anowner, you become the incumbent. And it's very difficult to takebusiness away from an incumbent agency if they're doing a goodjob.
Hot buttons: Where's the beef?
Coverages for restaurants are not particularly complicated(although they can be for bars and nightclubs, which arebeyond the scope of this article). They're roughly the same as forany commercial venture. We try to insure to value for both buildingand contents, and make sure liability limits are adequate. Also,we've continued with our proprietary workers comp program throughthe association.
The critical part of the process is educating the client, and wespend a great deal of time going over proposals and reviews withour customers. We first focus on the “catch” of coinsurance.Clients must understand the triangulation between coinsurance,replacement cost and the limits on the building and contents. Itell them that if a major loss occurs, the first thing the adjusteris going to ask is whether or not the coinsurance requirement hasbeen met. The answer had better be “yes!” I explain thatcoinsurance is a promise the insured makes to insure to value(i.e., not underinsure). If that promise is broken, a penalty in aclaim settlement may be invoked. I stress to clients that if theyremember only one thing about our meeting, they need to understandthe concept of coinsurance and be able to explain it to me when Icall back in three months. Most can!
The second thing we discuss is the importance of business-incomecoverage. Since most companies use an actual loss sustained form,we try to make sure the time frame is at least 15 or 18 months forcoverage. A well-written business-income policy covers anestablishment's loss of profits, continuing expenses and employees'salaries with no limit for ordinary payroll and a 60-day extendedperiod of indemnity. I explain to clients that its purpose is toreplace their cash flow until they can reopen, and they certainlyunderstand cash flow.
Another important consideration is insurance for code upgradesafter a major loss. We always include ordinance or law coverage toaddress this issue. Often an insurance company won't add suchcoverage if the client doesn't actually own the building. However,I was able to convince three of our carriers that even in suchcases we need to be able to provide a modicum of ordinance or lawcoverage, applicable to tenant real-property improvements andbetterments. In the last loss we had, the insurer's claim paymentincluded $100,000 for code upgrades. The client was extremely happywe anticipated his need.
One hot-button issue we always discuss is the employment practicesexposure–wrongful termination, sexual harassment anddiscrimination. Many of my single-location operators decline to buyEPLI, but some of my multiple-location clients do. Single-locationoperators tend to feel they can adequately monitor what's going onat their restaurants and avoid EPLI claims. We can also add athird-party discrimination (ADA issues) endorsement to EPLIcoverage, which is an important coverage for a business like arestaurant.
Naturally, we have premises, products and liquor exposures. Liquorliability insurance is inexpensive in California, since a change inthe law in 1979 for the most part switched the liability for liquorconsumption to the patron from the business owner. The coverage isdiscretionary, but we always include it, since it doesn't costmuch. An establishment still would have a grave problem if itserved an underage patron who then injured a third party in a carwreck. We haven't had any liquor losses in 25 years, butcatastrophe could be lurking. Hence the need for coverage.
We always add nonowned auto, because it's another exposure in thisniche that could cause a catastrophic loss. It's not uncommon forrestaurateurs to send a busboy to the store to pick up supplies. Arestaurant needs protection if employees use a private vehicles forbusiness purposes and cause a serious accident. Also, a shutdowndue to a food-borne illness can be catastrophic. Indeed, a healthdepartment shutdown can kill a business. While liability coveragedoes apply to a customer who becomes ill, covered losses from afood-borne illness shutdown and resulting business interruption arelimited. My hope is the preferred companies will enhance theircoverage in this area to mitigate the risk the insured mustcurrently bear.
We always review leases to determine property and liability limitsand assess other requirements that may be unusual, unfair orunreasonable. I remind my clients that leases are always written infavor of the landlord and they deserve close scrutiny. It'ssurprising how much a client's attorney will miss or may notunderstand. My ability to comprehend leases and provide appropriatedirection has enabled my clients to negotiate from a position ofstrength. They value the service and this ability helps separate mefrom the competition.
Ordinary fare
The most severe claims we have experienced, as might be expected,are from fires. Since 90% of fires occur in kitchens, restaurantsare especially vulnerable. We have one or two severe fire claims ayear, although I've had only two total losses in my career. Allinsurance companies require restaurateurs to clean the kitchenflues and filters quarterly and to service the kitchenfire-suppression system every six months. Those are two majorconcerns, because they affect warranties in the property-insurancepolicy. If a client doesn't fulfill the requirements, the insurermay not pay a claim. And they do confirm that the client iscomplying: For every major fire loss we've had, the insurer checkedinvoices to make sure both services were performed. We recommendthat clients obtain annual service contracts from their providers.If a quarterly cleaning or six-month service is somehow missed, atleast the owner can show that the work was scheduled in thecontract.
Insurers also expect restaurants to keep the kitchens clean, withall the goods stored neatly and tidily. They demand that food bestored properly, and that it be covered and maintained at thecorrect temperature.
Restaurant submissions are fairly standardized. We use an ACORDform and a one-page restaurant supplement. Among other items,underwriters want to know about a restaurateur's experience, sales,hours, liquor violations, losses and building characteristics.Clients can be turned down by preferred carriers for previousnonpayment problems. Those with one big loss or frequency issuesmay have to be placed in the E&S market, where coverage is moreexpensive and not always as extensive, but always available.Property deductibles are higher and typically liability deductiblesapply.
It's important for agents to inspect restaurants at least once ayear and see if anything has changed. Changes need not be large tobe significant. Simply adding a dance floor, for example, changes arestaurant into a nightclub, which is an entirely different riskfrom an insurance standpoint. Similarly, insurers can getuncomfortable if receipts from liquor sales creep over 35% of totalrevenue, since that suggests the restaurant is edging towards “bar”territory. (There's an exception for high-end restaurants, where$200 bottles of wine are not uncommon.) Insurers also don't likelate hours. The only entertainment they allow is sole performersdoing background music–but absolutely no dancing!
And every now and then there are surprises. I once discovered thata client was bottling salad dressing in the back of his restaurantand selling it in retail stores. Obviously, that created a productsliability exposure that needed to be addressed.
'This is the restaurant business'
Experience has taught me that, in most ways, insuring restaurantsis not that different from insuring any other kind of commercialendeavor. (Again, bars and nightclubs can be a different story.)Not all carriers see it that way, however. There are companies thathave appetites for restaurants, and those that don't. Fortunately,I have several preferred markets that will write restaurants withregularity. They include Golden Eagle, Capital Insurance, UCA andAllied. We also use Crusader Insurance Co. for the bars andnightclubs. We've established great relationships with our carriersand they trust our expertise in this class of business. Our goodfavor with companies always bodes well for our clients.
Few people outside the restaurant business can appreciate theenormous amount of work that goes into setting a plate of food infront of a patron. Winding up with a discretionary dollar is a realfeat. The business may seem to be glamorous, but here's thereality: Not long ago, I was having dinner with an attorney friendat a fine-dining restaurant. It was Saturday night and the placewas full. My friend was rhapsodizing about how wonderful it wouldbe to operate a nice restaurant. I said, “Come with me for amoment.”
The owner was a longtime client, so I was able to take my friendback into the kitchen. The drain had stopped up, and the chef wassloshing around in two inches of water, trying to keep thecustomers unaware of what was happening and still get the productout on time. I said, “This is the restaurant business.”
We have a keen appreciation of how difficult the business is, andhow many hats the owners have to wear. More often than not, it'simpossible to see the desk in a restaurateur's office because ofthe mountain of accumulated paperwork on it. Success is a grind,but our insureds' passion prevails. Most of our clients aresingle-location operators. When I deal with owners, they know thatI have their best interests at heart. They know that I bringinsight and value. They appreciate the heads-up that I give them onvarious items. They know they can depend on me for sage advice anddirection. We've had some of our clients for 25 years, and that'sbecause they know we'll take care of them.
There is an underappreciated emotional component to this businessin the event of a major loss. My clients may have spent their livesbuilding a business, and they've entrusted the protection of theirlife's work to me. It's a reality that defines my professionalresponsibility. When a client has experienced a devastating event,I want to be able to walk among the cinders and say, “We're goingto get you back in business. There's going to be some pushing andshoving, but you're going to walk back in here and pick up whereyou left off.” We must almost take the role of a grief counselor atthat time, because that's what the client needs. My own houseburned down 20 years ago, so I understand the emotional distressthat comes from standing among the ruins. Sensitivity to emotionalneeds during these times is essential, along with providing clientsstrong reassurance that their business will be saved.
Some of my clients joke about getting my coinsurance spiel for 20years. And then something will come up, and the light will go onand they'll say, “Right. I remember that! I know what we need todo.” They finally get it. When that happens I sleep well, knowingthat I've done the best job I can do to protect my customers.Mark Mays is president of Alcott Insurance Agency in San Diego.After graduation from San Diego State University, Mr. Mays beganhis insurance career with The Hartford in 1972. He joined theagency ranks in 1979, eventually moving to Alcott in 1984 andbecoming president in 1996. Alcott specializes in coverages forrestaurants, bars and nightclubs; contractors; and woodworkers,with Mr. Mays managing most of the restaurant and nightclubaccounts personally.