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

The agency was started by my father, Mike Grasso, and his partner, Jim Truback. In the 1980s, Robert Henkler joined the agency. 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, from luncheonettes to fine-dining restaurants, from corner bars to nightclubs. In this article, I'll discuss the techniques–from prospecting to placing business–that have helped us succeed in this segment of the market.

Prospecting

No single approach to prospecting or marketing predominates at our agency. Rather, we use a variety of techniques, including the following:

Referrals: Asking for referrals is a key part of our routine. The easiest way to get a new account is to have a satisfied client recommend you to a friend. We ask for referrals after we close the sale. Some new clients are hesitant to provide them but become much more willing to do so after they've been with us a year and we've had time to prove ourselves. Consequently, our volume of referrals from clients goes up in the second and third years they are on our books.

Telemarketing: For about 20 years, we had our own telemarketer. When she retired last year, we decided to use an outside telemarketing firm. One reason is because some carriers, as an incentive to do business with them, contribute to our telemarketing costs. The firm we use sets appointments for us and provides basic information about prospects, including expiration dates. We've been closing about 40% of these leads.

Mailings: We're pretty low-tech. We make our own mailers–one-page letters that we print on brightly colored paper, so they stand out. The gist of the letter is that the recipient should select an agency that has specialized in their industry for 40 years. We use the Internet to obtain leads. Rather than purchase them from specific sites, we just use search engines to compile our own lists.

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

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

Association involvement: I'm a member of the New Jersey License Beverage Association. From time to time, the association's individual chapters invite me to speak to their members about insurance or risk management.

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

When examining coverage, I look for what clients don't have, as well as what they do. Among the coverages I occasionally find missing are crime insurance, and assault and battery insurance. When I bring the latter gap to a restaurant owner's attention, he might ask, “I'm not a tavern; why do I need 'fight' coverage? I reply: “That's how many owners feel–until a fight happens in their place. You could host a wedding reception–or even just a birthday party–at which two family members wind up having a physical confrontation. After it's over, they're not going to sue each other–they're family. Instead they're going to sue the restaurant.” Such scenarios often persuade restaurant owners to regard the lack of assault and battery coverage as the serious omission it is. Depending on a restaurant's characteristics, we may be able to place it with a market that automatically includes assault and battery coverage in its package policy.

Loss prevention

For restaurants, loss prevention starts in the kitchen, where practically all dining establishments have fire-suppression systems made by Ansul or other manufacturers. The modern systems use “wet” chemicals that are effective at putting out fires arising from the hotter-burning oils that most establishments use in their deep-fat fryers these days. Many establishments, however, still have older, less-effective dry chemical systems. While ordinances and laws in many towns and states now require wet systems, existing establishments with dry systems typically have been “grandfathered” in. Nonetheless, restaurants with the older systems may have to replace them in the not-too-distant future. That's because dry chemicals increasingly are becoming unavailable, as vendors move to wet systems. Meanwhile, the dry systems have to be recharged every six months. At some point, recharging may no longer be an option.

Insurers expect restaurants to have an outside service steam-clean all their kitchen equipment on a quarterly basis, to ensure that grease does not accumulate. They also must have their Ansul systems and fire extinguishers checked regularly. They expect the premises and any parking lots to be well-maintained too. To obtain or maintain coverage, restaurants may have to repair sidewalks, and seal driveway or parking-lot cracks. They also may need to move garbage or trash containers. Insurers don't want them placed against buildings; if a fire starts in a container, an adjacent 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 most frequent. To prevent them, restaurants are expected to keep carpeting, hand rails and interior lighting in good condition. Falls on dance floors are a great concern. Establishments that have them often have to seek coverage in the E&S market.

Coverages

Restaurants are written either on a commercial package policy or a businessowners policy. The BOP is the better form and is offered only to better risks. Among other things, it provides 12 months of business 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 to restaurants, most carriers want to see “wet” Ansul systems, at least three years of experience, strong financial statements and no more that 30% of receipts coming from alcohol sales.

One hot topic right now is employment practices liability. Years ago, the exposure mainly was a concern to large employers. Today, many small and midsize businesses–including restaurants–also are concerned about claims arising from sexual harassment, age discrimination, etc. We offer clients stand-alone EPLI policies to cover this exposure. Despite the publicity EPLI claims have received, the product remains a tough sell. I'd say about 5% of our clients buy the coverage–but 10 years ago, none did. In time, I believe EPLI will turn out to be like liquor-liability coverage. It wasn't all that easy to sell 25 years ago; now no alcohol-serving restaurant or tavern operates without it.

Placing the business

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

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

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

Resorting to the E&S markets

Underwriters also want to know about entertainment and dancing, which are difficult risks to cover. Some establishments may operate as family restaurants all day. Then at 9 p.m., they move some tables 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 live entertainment. Invariably, we must place them with E&S markets, which usually provide little or no coverage for assault and battery. Increasingly, E&S markets also are including GL defense costs within the coverage limits. You're also looking at deductibles on general liability and liquor liability coverage ranging from $1,000 to $10,000. In contrast, BOPs written by admitted carriers usually have no liability deductibles at all. Relatively few of our restaurants go into the E&S market. About 20% of our bars and taverns–mainly those providing entertainment–wind up there.

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

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

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Providing first-class service to the food and beverage market

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