Mr. Dahm

Finance & Investment

Is Your Hotel or Restaurant Insurance Adequate? Twelve Tips to Get the Right Coverage & Reduce Risk

By Richard Dahm, Senior Risk Consultant, National Hospitality Division, Wells Fargo Insurance Services

In the last several years, the dramatic rise of insurance costs has placed an excessive burden on hotel and restaurant owners. Fortunately, the forecast for the 2007 insurance market remains optimistic with more insurance companies willing to compete and many offering broader coverage terms. As new markets become available, industry analysts advise caution. They recommend hotel and restaurant owners re-examine their existing management programs and develop initiatives to reduce the overall cost of risk. The following outlines a series of twelve tips to help you re-examine your insurance program, its depth of coverage, and related risks.

Twelve Initiatives for Hotel & Restaurant Management:

1 - Find the Right Insurance Specialist

Today, most hospitality executives realize that it is essential to find an insurance broker that specializes in their industry, one who knows the market and can tailor a reliable insurance program to their needs. A talented broker specialist can identify the right insurance coverage to solve immediate risk issues and anticipate future complications, thus allowing owners to concentrate on what they do best -- managing and developing their business. In fact, several of the larger insurance brokerages offer an entire hospitality division with a full staff of risk management professionals and specialty services including loss trending analysis, safety engineering, worker's compensation claims management, and experience modification analysis.

2 - Insurance Company & Underwriter Expectations

Insurance companies generally want the same type of information about your business regardless of the type of establishment you own. Financial information is necessary, especially sales receipts showing the percentage of alcohol to food sales. In addition, it is helpful that an owner or corporation have a resume highlighting their prior successes in the industry. - -

Underwriters want to know about your regular entertainment venues: live entertainment and catered parties, etc. The most important consideration is whether you are serving alcohol or not. Liquor liability coverage requires a separate application, which outlines practices such as happy hour, ladies-night, drink-specials, and other promotions where alcoholic beverages play a significant role in revenue.

3 - Get the Best Package Deal Possible

Your establishment should have an insurance program that includes essential coverage: property, general liability, liquor liability, employment practices liability, workers compensation, crime, equipment malfunction, and food spoilage. General liability coverage is one part of the insurance program that is consistent among different types and sizes of businesses. There is a standard general liability limit: up to $1 million in coverage per accident with a total of $2 million in one year.

Getting the best deal on essential coverage could enable your establishment to realize a savings of 20 to 40 % on your premium. Next renewal, take the time to do a broker selection. This simply means review your broker's capabilities. Most of the larger brokerage firms have access to a majority, if not, all the major important markets that should be approached. However, not all firms have specialized hospitality divisions that support the needs of hotels and restaurants. The key to finding savings is having a broker that understands the market and is in tune with the everyday operational risks of the hospitality industry.

4 - Understand Your Lease

Knowing how to read your lease is an important component of properly placing coverage. Your contractual obligation may indicate that your business is required to have certain limits of insurance or that you are responsible for repairing or replacing items if you do not own the building. Prior to signing a lease, have your broker review your contract for any discrepancies or coverage concerns.

5 - Be Aware of Replacement Costs

Carefully evaluate what the replacement costs are for your hotel or restaurant. Since furnishings can vary significantly from one restaurant to another, your broker should recommend an appraisal. Be aware that underinsuring can result in a percentage reduction in your claims proceeds after a loss.

6 - Business Income & Food Spoilage

To avoid disaster, the insurance carrier should write business income and food spoilage coverage very carefully; food-borne illnesses are more important than ever with an increase in publicized incidents. Also, remember that most coverage for business income includes a 24 - 72 hour deductible.

A qualified broker can also help you establish a disaster plan for weather-related power outages. This may include how to communicate with employees about openings/closings, how to secure a supply of dry ice to preserve food products, planning to defer delivery of perishable foods, contracting in advance to secure a generator to maintain air conditioning or heat and preserve perishable supplies. Expenses to minimize your income loss may be covered by your insurer.

7 - Supplemental Venue

Some establishments depend on local venues such as stadiums, performing arts centers, movie theatres, museums, etc. whose patrons could make up a significant portion of your clientele. In the event your nearby entertainment venue suffers a loss, it is important for your establishment to have business income coverage for the related loss of customers.

8 - Employee Theft

Aside from securing crime coverage, employers should also have a policy that includes employee theft. A restaurant that is primarily a cash business should take steps to control the handling of cash like implementing a monitored security camera over all register areas. In the event of a loss, it can be quite difficult to adjust a claim if you cannot document exactly how much cash was on hand or identify who was handling the register.

9 - Slips & Falls

From a general liability standpoint, slips and falls should be a major concern since they make up a significant portion of claims. Your broker should work closely with you to monitor such exposures. Inspect the interior of your premises on a regular basis for unsafe conditions that could lead to a slip-and-fall loss and maintain a daily log noting what corrective action you took.

Preventive measures should include ensuring that all entranceways and aisles are clear of obstructions, repair damage to stairs, sidewalks, and pavement quickly with cautionary signs posted. In addition, mop floors regularly and indicate as such with cautionary signage; repair cracks in tile, tears in carpets, replace loose or defective flooring, as well as providing adequate lighting in all areas to guard against falls.

In the case of weather related emergencies, have the appropriate tools and materials available for use by your staff (shovels, salt, sand, etc.). All entrances should have mats or rugs to help keep the floor clean and dry. Consider contracting with professional snow removal companies to plow, sand, and salt your parking lot and walkways.

10 - Valet Service

If you are planning to use your own staff to park patrons' cars, consider hiring a valet service instead. Consult your broker with regards to related increased liability risks and insurance costs associated with making such decisions. If you opt for an outside service, make sure the valet service you are about to hire is fully licensed and insured. Ask for a current copy of their license and insurance binder. Also, check with your local government to see if you need any additional licenses or permits.

11 - Safety First

Your safety program is very important. The more safety measures you have in place, the easier it is for your broker to market your business to an insurance company. Such basic items include a safety manual, fire-alarm system, central station alarm, and currently inspected suppression systems. Ensure that life and safety features such as fire alarms, exit signs, and emergency lights are operational and serviced as per applicable fire code specifications. In addition, it is important to have a written manual for furnishing and servicing alcohol.

Some additional caveats you may want to consider: never store combustible material near heaters or electrical equipment; store all your stock on skids, shelves, or racks and make sure the front, rear, and interior of your facility are well lit, especially when closed for business.

Arrange the interior layout of the store so that the register area is clearly visible from the exterior of the building and limit the amount of cash in the register by using a safe or similar device. If your facility is open after normal hours, consider the installation of closed circuit television cameras and hold-up alarms. You may want to consider making regular bank deposits, but vary the timing of the deposits and the route taken. Install anti-shoplifting devices and surveillance equipment and keep expensive merchandise locked in display cases. Ensure that all exit doors are unlocked during store hours.

12 - On-site Inspections

On-site inspections are a necessary process to review the needs of a client. If not, the broker is unable to identify and therefore communicate the specific risks related to your business. Before your broker submits an application to an insurance company, it is vital that they have a complete, observed understanding of your facilities.

Richard Dahm, Jr. is senior risk consultant for the National Hospitality Division of Wells Fargo Insurance Services, Clearwater, Florida. His expertise includes property, restaurant/hotel facilities, and risk management. He holds a BA in management from Eckerd College and an MBA from DeVry University. Richard is a member of the Florida Restaurant and Lodging Association. Mr. Dahm's knowledge, coupled with his professional staff of claims, safety, and marketing professionals enables him to provide hospitality executives with consultation that reduces insurance risks and premiums. Mr. Dahm can be contacted at 800-282-3343 Ext: 5436 or Richard.Dahm@wellsfargo.com Extended Bio...

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