No restaurant or cafe should open their doors for business without the right insurance in place
A broken coffee machine in a busy commuter cafe. A Saturday evening powercut for a fine dining restaurant. Or being sued by a customer claiming food poisoning. The list of things that can go wrong for a restaurant or cafe owner is endless and the stuff of nightmares for any business owner. Events like these can spell financial disaster unless the business has the right insurance.
For business owners, that means analysing the risks and likely troublespots for each business, researching the insurance options available and picking insurance to fit. “A restaurant is a huge investment,” says Mat Lethborg, national associations and partnerships manager, OAMPS insurance brokers. “Adequate insurance protection must be in place so the business can survive the event of a major loss.”
Consider a wide range of elements when looking at the basic ingredients of an insurance policy for a restaurant or cafe. “There’s a tendency to shop around for the most competitive policy, but at a minimum, all businesses should ensure that their assets, revenue and liabilities are adequately insured,” says Jarrod Tilbrook, national practice manager with Aon Risk Solutions Australia.
It’s important to think beyond material objects. Calculating the value of assets like the building and stock is an exact process compared with calculating lost trading income if you’re ill or legal costs if the business is sued.
“The most important covers that should be considered are public liability and product liability insurance,” says Lethborg, of OAMPS. “Without these covers, a major incident may have a devastating impact on the business, but also on the owner’s personal assets, if it was found the cause was negligence.”
Whether there are few employees or many, restaurants and cafes should also insure against the risk of any management issues that can crop up.
“We also suggest management liability insurance, as this protects the owners against litigation following claims relating to occupational health and safety or sexual harassment,” says Lethborg. “Workers compensation insurance is required by law and there are large risks to the businesses and heavy penalties if this cover is not in place.”
There are a range of business insurance packages available for hospitality businesses that offer coverage for some of the main areas, like burglary, fire, storm and malicious damage, machinery breakdown, glass breakage cover, personal accident and illness and business interruption.
“Restaurateurs should transfer any risk that the business does not want to hold,” says Jarrod Tilbrook of Aon. “So if there is a particular risk or loss that your business would not be able to recover from, such as fire or storm, then you should transfer this risk away from your business using an insurance product.”
Get it right
There’s no one-size-fits-all insurance policy for a restaurant or café and inadequate insurance coverage can mean financial ruin if things go wrong. Under-insurance is one of the most common insurance errors business owners make.
“Many individuals believe ‘it won’t happen to me’ and look at cutting costs rather than taking out adequate insurance protection,” says Mat Lethborg. “Under-insurance, in particular regarding fire cover, is a major concern in this industry. Cutting corners may save you money when you purchase insurance but it could cost you everything when you actually need it.”
Business owners need to carefully consider the risks particular to their business, especially factors like location. Businesses in flood- or bushfire-prone areas, for example, should be properly covered for these events.
“People say things like, ‘we’re on a river, we can’t get insurance’,” says Tilbrook. “There’s always insurance available. You might just need to pay more for it. Businesses need to weigh up the price versus risk factor.”
It’s also important to re-evaluate your insurance policy at least every year or whenever there’s any substantial change in the business. “It can be complex, and might take an hour for you to check and calculate any changes, but is worth it,” Tilbrook says. “For example, alcohol stocks can vary from year to year. Or revenue might fluctuate and business interruption figures will need to be adjusted accordingly.”
It’s important to research carefully when choosing an insurance policy for your restaurant or cafe, and can be worth getting
expert advice from an insurance broker or adviser. “Using an insurance broker will save time and money and will ensure that the cover purchased is correct for the individual business needs,” says Lethborg of OAMPS.
A broker will provide objective advice about any insurance issues particular to your business.
“A direct insurer has no obligation to give you any risk advice,” says Tilbrook. “A broker will give you an overview and be an advocate for your needs.”
It’s worth taking the time to discuss the ins and outs of your business with an expert.
“Many people just send in their forms; we really do urge restaurateurs to pick up the phone and have a chat with their broker,” Tilbrook says. “There are many different policies available in the market today, from broad-based business packages, to highly tailored industrial special risk policies. Each provides a different form and level of coverage and every restaurateur should consult with their broker to assess their need and appetite for risk transfer and risk retention.”
And choose carefully when it comes to choosing an insurer.
“The most important thing to look for is flexibility in covers to suit the needs of the individual operators,” says Lethborg. “A well-established, stable, authorised insurer with knowledge of what they are insuring is also important. A local insurer will also be easier to deal with when making a claim.”