Restaurants Insurance in 2024: What to Expect and How to Prepare

As an iconic part of communities around the world, restaurants have experienced immense challenges over the past few years due to the COVID-19 pandemic. While brighter days seem ahead as we move into 2024, uncertainty remains part of operating a food service business. 

The State of the Restaurant Industry Heading into 2024

After facing lockdowns, capacity restrictions, and depressed demand during the height of the pandemic in 2020 and parts of 2021, the restaurant sector has shown signs of recovery but still has a long road to full healing. According to the National Restaurant Association’s 2023 State of the Restaurant Industry report:

• Restaurant and food service sales are forecast to reach $898 billion in 2023, a 5.4% increase over 2022 but still below the pre-pandemic 2019 level of $899 billion.
• Restaurant jobs are expected to grow 3.6% to nearly 16.5 million in 2023, making up 10% of the U.S. workforce. However, this represents only a partial recovery from the pandemic-driven employment decline of 2.5 million jobs (-15%) in 2020.
• Consumer confidence and spending are susceptible to potential economic headwinds like high inflation, rising interest rates, and recession risks that could dampen industry recovery. Ongoing issues like rising food costs and supply chain problems also pose challenges.
• Off-premises sales like takeout and delivery retained by restaurants during the pandemic are estimated to remain 20% higher than pre-COVID levels through 2023 as online ordering becomes more normalized. However, this also puts pressure on in-restaurant profit margins.

With the effects of the public health crisis still rippling through businesses and consumer behavior, restaurants will likely operate in an atmosphere of uncertainty for 2024 that warrants prudent insurance planning. Let’s explore some key factors and strategies to consider.

How COVID-19 Has Impacted Restaurant Insurance

The insurance market reacted swiftly to the pandemic by invoking business interruption coverage exclusions for virus- and disease-related claims. While some lawsuits and policyholder demands for coverage continue navigating the legal system, the overall consensus from insurance providers is that COVID-19 losses generally do not qualify for compensation.

This has left many restaurants on their own to shoulder economic damages from mandatory closures and restricted operations over the last couple of years. Some observations on the post-pandemic insurance landscape:

• Premium costs have risen significantly across many business insurance types as underwriters adjust risk assessments in light of COVID-19 losses and economic volatility. Price hikes of 10-30% are common for restaurant policies in 2023.
• Certain supplemental coverage like business interruption, contingency, cyber risk, and event cancellation protection may come with stricter terms or higher deductibles in response to pandemic-related payouts and risk exposure learnings.
• Carriers have pulled back from insuring sectors hit hardest by COVID-19, such as bars, nightclubs, event spaces, etc. Although restaurants were not uniquely targeted, the capacity and choice of insurers may be more limited.
• Policymakers debate potential reforms to business interruption insurance for future pandemics, but no universal solution or legislation has emerged at this time. Restaurants remain self-insured for disease outbreaks.

Going forward, restaurants must plan for a higher-priced, protection-focused insurance environment subject to continual adjustment based on public health and economic conditions. Let’s review tailored recommendations.

Key Restaurant Insurance Considerations and Strategies for 2024

With an understanding of ongoing pandemic impacts and insurer responses, here are some proactive steps restaurants can take to secure comprehensive protection at a reasonable cost heading into the new year:

Evaluate Coverage Needs

As business models, operations, risk exposures, and financial positions evolve post-COVID, conduct a thorough review of existing policies versus real needs. Areas to scrutinize include property coverages, general liability limits, cyber liability, business interruption structure, and add-ons like flood or earthquake protection if applicable. An insurance broker can assist with this analysis.

Review Loss Control Practices

Adopting proactive safety, security, and risk management techniques strengthens the case for favorable pricing and policy terms with underwriters. For restaurants, this involves following all local regulations, plus focusing on food safety training, slip/fall prevention, background checks, and basic facility maintenance to minimize claims.

Explore Alternative Insurance Markets

Depending on size, sector, and geographic location, nontraditional markets from niche insurers or wholesale insurance brokers may offer more competitive options versus standard admitted carriers. Start inquiries early and weigh the comprehensive coverage and financial strength of prospective providers.

Consider Using a Captive Insurer

Larger restaurant groups self-insuring high-frequency, lower-severity losses through a protected cell captive arrangement helps supplement standard coverage. Proceeds from the captive pay claims directly, lowering costs by bypassing insurer overhead. However, it requires substantial capital and risk control resources to implement.

Raise Deductibles Within Reason

The insurance deductible, or the amount a policyholder pays before the insurer covers losses, helps control rates. However, going too high may expose the business to financial hardship from even small claims. Balance premium savings vs. financial resilience in times of loss. $5,000-$25,000 may strike the right deductible range for many independent restaurants.

Incorporate Inflation Adjustments

To prevent policy limits from losing real value over time, especially during high inflation, push insurers to tie key coverage dollar amounts like business personal property coverage to external indices. Common options include the consumer price index. This ensures insured values stay accurate without manually increasing them each year.

Request Multi-Year Agreements

Negotiating multi-year insurance contracts with locked-in rates and terms creates stability and predictability during uncertain economic cycles. Longer-term commitments are especially useful when implementing major CAPEX projects or operating in hazardous regions prone to natural catastrophes that would otherwise push prices up.

Proactive management of insurance programs leveraging the above strategies helps restaurant owners secure financial protection suitable for their particular business needs in 2024’s dynamic operating landscape. The next level is staying adequately covered over the long run.

Maintaining Sustainable Insurance Protections for the Future

While reacting to pressing insurance considerations for the coming year, restaurants must also keep one eye on establishing sustainable insurance protection schemes that can stand the test of time. Two notable trends around long-term viability include:

Embracing Risk Management as a Core Function

Progressive operators view insurance not merely as an annual cost center but as a risk transfer mechanism informed by rigorous internal oversight. Train managers across all departments on continuous awareness and documentation of safety practices, potential vulnerabilities, policy requirements, and best practices. Establish clear incident response protocols.

Investing in Preventive Wellness Resources

From offering employee assistance programs and work-life balance initiatives to job site modifications promoting physical and mental wellness, proactive wellness interventions reduce the likelihood of costly claims resulting from injury, illness, or turnover. This positive approach benefits human capital protection for years ahead in addition to today’s balance sheet.

Finally, restaurants would be wise to factor the possibility of future pandemics and supply shocks into long-range preparation. Options include retaining contingency reserves, subscription-based policies covering disease outbreaks, and periodically stress-testing continuity protocols. Resilience requires vision and preparation far beyond any single policy period.

By developing an ingrained culture of risk management, liability mitigation, and workforce investment practices while keeping future “black swan” scenarios in mind, restaurants get closer to achieving a sustainable approach to safeguarding their operations and financial health for the long run. Let’s move to common questions addressed by restaurant owners.

FAQ 1: Will Insurance Premiums Remain High for Restaurants in 2024?

Most experts predict insurance rates for the restaurant industry will continue rising at an elevated pace through 2024 as underwriters factor in pandemic losses and adjust models to the new risk landscape. However, the degree of increase should moderate versus the double-digit hikes seen last year. Proactive risk controls and prudent policy management can help businesses secure more competitive terms, but owners should budget for premium cost inflation of 5-10% on average. Multi-year agreements locking in rates provide predictability during uncertain times.

FAQ 2: What Are Some Tips for Finding the Right Restaurant Insurance Broker?

When selecting an insurance broker, prioritize firms with deep experience serving food service operations of your particular size, sector, and location. Ask brokers point-blank about their specialization and average tenure of restaurant book-of-business. Request client references in similar operations. Brokers who are attentive to your unique exposures and loss history versus just offering off-the-shelf packages prove more valuable. Thorough policy reviews and claims advocacy further differentiate the highest quality representatives. Competitive rates matter less than competence in navigating today’s complex landscape.

FAQ 3: How Can Restaurants Protect Themselves from Lawsuits?

Liability insurance is the first line of defense against lawsuits, so maintain robust general liability and liquor liability (if applicable) limits. Beyond this, reduce risks through staff training, surveillance cameras, regular maintenance, and compliance with all permitting and safety regulations. Have a lawyer review waivers, indemnification clauses for vendors/contractors, and menu disclaimers.

FAQ 4: What Types of Cyber Liability Insurance Should Restaurants Consider?

With point-of-sale systems, employee devices, and online order platforms all processing sensitive customer payment data, restaurants face growing cyber risks. Options to explore include network security and privacy liability policies covering costs to notify customers of a breach, paying for credit monitoring services, and covering legal damages from lawsuits. Media liability insurance also helps defend against defamation risks on review sites. For restaurants collecting substantial amounts of digital payments, higher cyber liability limits of $1-5 million are prudent. Multiplying vulnerabilities requires multilayered cyber protection.

FAQ 5: How Can Seasonal Restaurants Ensure Adequate Year-Round Coverage?

Seasonal operations closed for parts of the year require specialized policies. “Wave” provisions allow increasing/decreasing certain limits and coverages in sync with active/closed seasons to avoid paying for unnecessary protection. Storage endorsements cover at-risk property when not in regular use. For liability, “closed season” policies trigger minimal premiums yet maintain continuous protection shielding owners from lawsuits during dormant periods too. Communicate all schedule changes clearly to agents and read the fine print of existing policies to avoid coverage gaps during transitional periods. An insurance advisor can structure custom programs for flexible, seasonal exposures.