A Growing Appetite

There is no doubt that restaurants attract a lot of competitors–particularly in a soft market. It's a large and appealing niche to an agent looking for a target market–and restaurants are everywhere, in small towns and large cities. According to the National Restaurant Assn., nearly 1 million restaurant locations exist in the U.S. and they generate about $580 billion in sales annually, approximately 4 percent of the U.S. gross domestic product. Further, the restaurant industry is beginning to recover from the recession faster than some other industries, such as construction. The National Restaurant Assn. predicts flat sales through the end of 2010, following 2 years of negative growth–a good sign. Additionally, according to the Bureau of Labor Statistics, in the first 3 months of 2010, the restaurant and food service industry added 42,500 jobs, adjusted for typical seasonal hiring patterns. As sales and payrolls go up, so do premiums.

Related: Read “Restaurants and the recession.”

It is not hard to see why this is an attractive niche for so many agents. But how can an agent achieve success in this crowded field of restaurant insurance sales? How do you avoid spinning your wheels? Here are some strategies to consider:

Stay on top of changing coverage options that may enhance your proposal (and your chances for an order!) The restaurant industry is a dynamic one. It is constantly evolving and with that comes new exposures and coverage needs. The agent who identifies those changing needs and presents solutions will gain a marketing advantage.

For example, an emerging exposure and coverage need for restaurants is cyber risk insurance. Like other businesses, restaurant owners rely more and more on the Internet for various aspects of their operation. Using the Internet as a tool for e-commerce and general business operations also means new exposures such as data/security breach, copyright or trademark infringement, data destruction and/or corruption as a result of a virus, cyber extortion, hackers, worms and other cyber meddlers, and firewall and network security attacks.

Internet use exposes restaurants to risks that may not be covered under many commercial insurance policies. Most restaurants do not have the tools or procedures in place to detect identity fraud, including an incident response plan, vendor management procedures or data encryption for personally identifiable information. Many states have enacted data breach notification laws, and the compliance costs to notify customers as well as the risk of incurring fines/penalties can be significant. Some carriers that are ahead of the curve are offering cyber risk insurance. For example, one of the carriers my company represents offers a cyber risk endorsement that is affordable and offers important basic protection for the restaurant owner. Insurance professionals who research this coverage and proactively present a quote to their clients and prospects demonstrate that they are staying ahead of the curve and looking out for their clients' interests.

Similarly, restaurants use more sophisticated equipment to operate their businesses than in the past. Whether it is computer-based cash registers integrated with point-of-sale management systems, multiple refrigeration systems, commercial-grade sound systems or inventory scanners, restaurants are using technology to be more efficient and help manage labor, inventory and energy costs. Many use their point of sale systems as a time clock for employees so they can match staffing with business volume. When you add personal computers, telephone systems and fax machines as well as the electrical distribution system itself to the mix, there is plenty of equipment at risk of power surges, electrical arcing and short circuits.

Unbudgeted losses from a breakdown can be extremely costly, yet some agents and policyholders still regard equipment breakdown insurance as optional. Although the coverage itself is not new, some of the exposures that it addresses are new as the use of technology continues to advance in the restaurant industry. This is an opportunity for an agent who understands the importance of the coverage for today's state-of-the-art restaurant operation to shine.

Cyber risk and equipment breakdown insurance are just two of the many coverage options you can present to your clients and prospects that will demonstrate your understanding of how specialized coverages relate specifically to their business.

Keep abreast of restaurant industry trends and how they may impact your clients' insurance needs. What's new in the restaurant industry? If you can't answer that question, then you already are behind the 8 ball in the sales game. A firm grasp on the restaurant industry, what's new and what is developing, is one way you can differentiate yourself from other agents. There are many websites that will help you stay informed on industry trends.

One recent trend is that many restaurants are using drink promotions to bring in business. Happy hours, half-price wine nights, ladies' nights, sporting event specials are all on the upswing and along with these promotions, liquor sales in relation to food sales are up at many establishments. Drink promotions may be a successful strategy for many establishments, but restaurant owners need to be educated about the potential pitfalls of this strategy regarding their insurance coverage and premiums.

Depending on how high the liquor ratio climbs, some carriers may not wish to write the risk, while others may raise rates and possibly limit coverages if they perceive that the establishment is more a bar than a restaurant. You will look like the knowledgeable professional that you are if you point out the possible downside early, before the non-renewal notice or the rate increase. If you wait until after, you know what they say about the messenger who bears bad news; not a good scenario for you. You may also use this as an “in” with new clients if you can knowledgeably discuss how operational changes may affect their premiums or coverage–particularly if their current agent has not bothered to do so.

Other recent restaurant industry trends that may affect your clients' insurance include adding delivery service, entertainment, takeout, a dance floor, more TVs, or expanding late-night hours. All of these ideas may seem to the policyholder like a terrific way to increase revenues, and that may be true. But you can avoid unpleasant surprises at renewal time by talking to your clients in advance about how potential changes could affect their insurance. Ask if they are considering any of these changes and contact the carrier about how it may impact the policyholder's eligibility and rates so the policyholder can make an informed decision knowing the costs as well as the benefits. By doing this, you become not just a salesperson, but a business advisor.

Fact-check your submission using the Internet. Sounds pretty basic, doesn't it? Yet many agents do not take the time to verify the information provided by clients via the same tool that the underwriter is sure to use: the Internet. In the highly competitive environment of restaurant insurance, agents can't afford to lose their credibility with a market. Yet time and again, our office receives submissions from agents who clearly did not do their homework.

Related: Read “Tough times mean more boozing.”

The Internet has brought a whole new dimension to the underwriting process. Most restaurants have their own websites that provide important information like hours of operation, entertainment calendars and drink specials. In addition, there are many other potential sources of information on the Internet including Facebook, MySpace, CitySearch and Metromix, just to name a few. Before you submit that application that says the restaurant closes at 11:00 p.m., has no entertainment and does not have drink specials, use your search engine to check for conflicting information, because you can be sure that 95 percent of the restaurant underwriters will be doing the same.

If you verify the underwriting information before submitting the risk and then follow up with the client or prospect regarding any inconsistencies, it is far better than having an underwriter find the errors or oversights in your submission. Once your credibility is undermined with an underwriter, it is hard to regain. It is often said that insurance is a relationship business. That is true both on the agent- to-policyholder side and on the agent-to-underwriter side. Underwriters value relationships with professional salespeople who provide accurate, complete submissions and they will reward those agents with their very best efforts and ultimately that will give you a competitive edge.

Understand the niches within the niche. We've already talked about why restaurants are an attractive niche for many agents. The successful salesperson will learn how to effectively target the niches within the niche. Not all restaurant risks are created equal. The coverage needs of a fine dining restaurant are not the same as a fast food restaurant. Carriers' appetites vary as well. Work smart and work efficiently. Know the appetites of your markets and which product fits which type of restaurant best.

Your markets will quickly grow weary of a shotgun approach to marketing restaurant risks. Underwriters want to see that you understand their target risk. The beauty of this scenario is that the best interests of the carrier, the agent and the policyholder are nearly perfectly aligned. Each partner can be a winner in the process if you have taken the time to identify the best insurance products for your varied restaurant clients. A fine dining restaurant with a fine arts collection should not be written on a BOP with a $5,000 fine arts sublimit or with a carrier that will not provide garage keepers' legal liability coverage for their valet service. Similarly, a corner deli is not best served by a package policy with a high minimum premium loaded with extras that may sound good, but are really not pertinent to the operation.

The sales professional who has taken the time to understand how different restaurant types fit with different insurance markets will improve the underwriting process for all participants–including the client. There is no reason to have your clients or prospects complete supplemental applications for markets that are not a good fit with their operation. Similarly, your agency staff need not waste their time following up with carriers who are going to just end up declining a risk because it does not fit their appetite. You can develop a win-win-win scenario for your client, your agency and your markets if you take the time to develop this basic understanding of your clients' needs and your markets' appetites.

Knowledge is king. Each of these key strategies is contingent on the same basic principle: You, the agent, have to educate yourself. You can cold call restaurants until you're blue in the face, but if you do not understand the restaurant industry, the specifics of a given client or prospect's restaurant operation and the finer points of the products and coverages available in the restaurant insurance marketplace, it is unlikely you will succeed in the long run. So take advantage of the plentiful resources available to you and go to school first. Then go write some restaurant insurance.

Related: Read “Restaurants and the recession.”

Related: Read “Tough times mean more boozing.”

Heidi Strommen is president of ProHost USA in Minneapolis. ProHost is a program administrator formed in 1989 that writes insurance for restaurants, bars adn taverns. Strommen joined the firm in 1990 and oversees all underwriting, business development and administrative functions. She can be reached at hstrommen@prohostusa.com.