Target Market Series: Restaurants

By Kim Smith

Target Market Series: Restaurants is a valuable asset to insurance and risk management professionals who are looking for exposure, risk management, and insurance information that is focused solely on the restaurant industry.Written by the Editors of FC&S®, based on the series by Kim Smith, CPCU, ARM, the Restaurants book and accompanying online checklists offer insight and information on what is needed to address the wide variety of restaurant exposures out there.This book includes information such as:-Industry background-Market profile-Key industry groups -Underwriting concerns -Coverage considerations-And more!Coverage checklists specific to the restaurant industry are available online at www.fcands.com/restaurants. The online forms may be downloaded for print use with clients or completed online and downloaded.

• Language: English
• Publisher: The National Underwriter Company
• Release date: Jul 15, 2013
• ISBN: 9781938130502

Kim Smith

Kim Smith has illustrated several books, including picture book versions of Home Alone, E.T., and Buffy the Vampire Slayer. She lives in Calgary, Alberta. kimillustration.com Twittter @kimdraws Instagram @kimillustration

Book preview

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.— from a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.

Copyright © 2008 by

THE NATIONAL UNDERWRITER COMPANY

P.O. Box 14367

Cincinnati, Ohio 45250-0367

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the publisher.

Includes copyrighted material of Insurance Services Office, Inc., with its permission.

This product includes information which is proprietary to Insurance Services Office, Inc. ISO does not guarantee the accuracy or timeliness of the ISO information provided. ISO shall not be liable for any loss or damage of any kind and howsoever caused resulting from your use of the ISO information.

International Standard Book Number: 978-1-938130-50-2

Library of Congress Control Number: 2008935832

Printed in the United States of America

Table of Contents

Chapter 1: Introduction—Restaurants

Chapter 2: Restaurants Sic Classifications

Chapter 3: Marketstance Data on Naics 722

Chapter 4: Market Analysis and Sample Proposal

Chapter 5: Underwriting Concerns

Chapter 6: Coverage Considerations

Chapter 7: Noninsurance Consideration

Chapter 8: Common Restaurant Terms and Phrases

Chapter 9: Standard and Manuscript Forms and Endorsements

Chapter 10: Restaurant Survey Checklist

Chapter 11: ISO Market Segments Program—Restaurants

Chapter 1: Introduction—Restaurants

The restaurant business is composed of many different types. There are large, chain restaurants that have locations throughout the country; there are smaller restaurants that limit their business to one or two locales. There are family-style restaurants catering to the family as a whole; there are restaurants that cater to business groups. There are fast food restaurants (with take-out service) and there are formal dining places. There are restaurants that are entertainment oriented and sell alcohol; there are small diners with the strongest drink being lemonade. And, there are theme restaurants that combine food service in a particular type of environment, such as ethnic settings (for example, Italian, Mexican, or Chinese), sports, music, or movie memorabilia. But, whatever the size or style or location of the restaurant, each one shares many risk exposures that are common in the restaurant business. As examples, every restaurant has property exposures, especially the risk of a fire loss; every restaurant has liability exposures such as slip and fall injuries and product liability claims; every restaurant is exposed to workers compensation claims.

This Target Market book offers an examination of the underwriting concerns and coverage considerations (both insurance and noninsurance options) that exist for the restaurant business. SIC classification codes for rating purposes are listed. Market profile information, with a listing of industry trade groups and associations, is included. And, a coverage checklist that summarizes the relevant coverage considerations and serves as a reference tool when surveying a restaurant risk is also presented.

In the words of the original author of the FC&S Target Market Series, Mr. Kim R. Smith, CPCU, ARM, the purpose here is to try to include a complete overview of all the vital information that would be needed to market a particular class of business successfully. The goal of this book is to provide information that is basic enough for a novice producer to understand, yet sophisticated enough that even an experienced producer will find this text useful.

Note also that the National Restaurant Association is the leading trade association for the restaurant industry; much information on the restaurant business can be attained at the Web site of the Association. The Web site is www.restaurant.org.

Chapter 2: Restaurants Sic Classifications

The Standard Industrial Classification manual (SIC) classifies several categories of restaurants. Most insurance carriers follow this listing as a basis for eligibility and rating purposes. The following is a brief description of those business types that fall under this heading.

Chapter 3: Marketstance Data on Naics 722

Build 904b - Standard Enterprise Basis Data through 2006

Chapter 4: Market Analysis and Sample Proposal

Market Analysis

When discussing potential markets for the restaurant industry, distinctions arise as exposures vary. For example, restaurants that serve alcoholic beverages may not be eligible for coverage from insurers that write family-style restaurants. Restaurants with delivery service have different exposures than upscale restaurants.

It is impossible to list every insurance company that offers insurance for restaurants. However, a list of insurers and intermediaries that actively solicit such risk is available for online access at http://www.fcands.com/restaurants. It is in no way comprehensive, and some of the listed companies may cease writing restaurants risk in the future. Inclusion in the list does not imply any endorsement by the National Underwriter Company.

Sample Proposal

A sample proposal that may be used when presenting an insurance program to a restaurant prospect also is available online at http://www.fcands.com/restaurants. The proposal incorporates the coverages that are explained and discussed throughout this book.

Chapter 5: Underwriting Concerns

Because restaurants serve food to the public, they present a host of underwriting concerns. Naturally compliance with local health and fire department regulations is primary; insuring a restaurant that’s been cited by the health department is asking for a loss. There are many things beyond compliance to review when evaluating restaurant accounts.

The type of restaurant is a good place to start; is it a fast food restaurant, family style, fine dining, ethnic, delicatessen or bagel shop? Different types of restaurants present different hazards; a fine dining establishment that serves alcohol has different needs than a fast food restaurant with a play area and vice versa. Whether or not the restaurant is a national franchise or one of a handful of locally owned restaurants or a single restaurant is another consideration. National franchises may have standard loss control procedures but they may also be more prone to theft and other losses because of their visibility and late hours. The cost of food, complexity of menu, and average age of clientele all make a difference. Fast food establishments will have more traffic in and out, making parking lots a greater concern. Tableside cooking presents fire hazards and an establishment serving Fugu, the poisonous Japanese puffer fish is a higher risk than the local pizza shop. Twenty-four hour establishments present a particular concern, as it’s natural for thieves to assume that the pre-dawn hours are a good time for a break in. Many carriers have restrictions on restaurant operations that are open 24 hours a day.

When looking at the type of restaurant, the percentage of receipts from various elements of the business is important. An establishment that earns 70 percent of receipts from serving alcohol indicates that liquor liability is a large issue for that establishment. The presence of entertainment, including type and frequency, is important. This includes dance floors, bands, games, and live entertainment. Some entertainment encourages audience participation which presents different hazards. Are trinkets given to children, are patrons touched by dancers or actors, and are props handled safely? Anyone in costume may leave the floor littered with beads or sequins that become a trip and fall hazard. Play areas present a concern because of potential injury, and potential problems dealing with who is allowed access when, and whether or not the area is monitored. All play equipment should be clean and well maintained. The square footage allowed for the bar area, dance floor, entertainment or play area helps identify the extent of liability exposures. Many carriers restrict writing policies based on the presence of certain forms of entertainment or the percentage of receipts earned from certain activities.

Staffing should be reviewed for number of employees, experience, and turnover. Are managers present at every shift, and if not who is in charge? Which staff is allowed access to inventory, cash registers, stored cash and bank deposits is a concern. It’s important to review who makes the deposits and when, and how cash is transported. Staff may be responsible for handling patrons’ belongings such as coat checks or valet parking. Hiring, discipline, and firing procedures are another consideration, as well as who actually conducts the interviewing, hiring, discipline and terminations. Experience is a concern not only for the staff but the owners as well. If the restaurant is well established and has been owned and operated by the same person or people for several years you can have greater confidence in their ability to operate the restaurant than someone opening a new venture who has never operated a restaurant before. Many new enterprises find themselves over their heads when trying to start and maintain a business. Many carriers require a restaurant to have been in business three years before considering providing coverage.

Liquor liability is one of the largest concerns. The hours that liquor is served and the percentage of receipts from the sale of liquor are indicators for liability. Training for staff and bouncers should be required. Specific training for serving alcohol and handling patrons is available. Checking identification before serving alcohol should be standard procedure. If the establishment has been cited for violations those violations need to be disclosed and explained.

As always with underwriting, the restaurant’s past loss history for all types of losses needs to be reviewed. While many losses are unavoidable, some aren’t, and past losses give the underwriter a look at how management regards the property in general. Frequent or careless losses can indicate that management is not diligently taking care of the property.

The structure itself is a major underwriting consideration. Because cooking is involved, fire is the largest property hazard restaurants face. Whether or not the structure is frame, masonry, or a combination of materials directly affects the risk of fire. The age of the building is important and older buildings should have system upgrades if they are over a certain age; most carriers indicate at what age they want the building systems to have been upgraded. Proximity to local fire department services and the presence of alarm systems are crucial. Frame structures that are too far from a fire department are normally not eligible for coverage. According to the National Fire Protection Association (NFPA), cooking equipment fires accounted for twenty-five percent of structure fire losses from 1999-2002. Compliance with NFPA standard 96 is usually required for the kitchen area. The existence of dwelling premises attached to the establishment heightens fire concerns.

Because of the handling and cooking of food, the ventilation system, cooking and refrigeration systems are important. Certain venting is required from the kitchen, and food must be kept at proper temperatures. Flammables need to be kept away from hot surfaces. Other structural concerns include basic housekeeping and proximity to water.

Lastly, supplemental business is a concern. Outside catering presents a host of issues from keeping food the proper temperature to the transportation vehicles and drivers. Staff can be injured offsite or could cause damage or injury. Hosting internal events is an issue as well. A restaurant that regularly rents space for wedding receptions, group dinners, meetings, or private parties has more liability exposures. People at parties may be more apt to overindulge in alcohol and behave boisterously. How much catering or in house banquet hosting is done should be examined. An establishment that does a lot of catering may be higher risk