Working out the best level of insurance for your hospitality business can be straightforward if you have the right information. Nicole Szollos reports.
Amid the excitement of establishing a hospitality business, one of the most important jobs—setting up insurance—can at first glance seem the most tedious. But new restaurant and catering business owners need not let this necessary task tarnish the thrill of opening night. The insurance broking industry has identified Australia’s developing food services market and matured alongside it, ensuring access to specialised products and professional individuals ready to assist.
Melbourne-based OAMPS Insurance Brokers (OAMPS) began its hospitality business unit in 2005 to focus on what it recognised as a growing industry and offer an alternative product in the market.
“While the hospitality industry is a very significant component within the Australian economy, hospitality businesses were not seen as attractive risks to insurers because of inherent exposures. This has changed somewhat in recent years, as many businesses are well managed, well maintained and profitable. In addition, compliance and legislation changes to industry regulations such as occupational health and safety, and tort reform have assisted from an insurance perspective,” says Tony Walker, national manager of hospitality at OAMPS.
Borough’s Café Wine Bar, a beachside restaurant in the Queensland suburb of Scarborough, recently obtained its business insurance and went with an insurance broker with a specialist hospitality division. Opening on 22 June 2005, the restaurant’s part-owner Bruce Neal says choosing a specialist insurance broker was a deliberate strategy and getting insurance was an “easy process”.
“We got on to MIB Insurance Brokers through Restaurant & Catering Queensland and we worked with them through all of the requirements, were given suggestions and negotiated the different things we wanted to build our own requirements. It was a process that challenged our minds, because it raised issues that we hadn’t thought about and it was quite informative,” says Neal.
“One of the most important things is to go with a company that deals with hospitality. We have, through other businesses, different insurance companies but when you start talking about the requirements for hospitality, they really weren’t up to speed. My recommendation would be to always go with a company that has got runs on the board with hospitality. They know the pitfalls and all the various issues,” adds Neal.
Given that there are complexities surrounding insurance in general, AON’s specialist hospitality insurance division approaches the process by breaking it down into three categories—people, property and business owner/operator risks—when assessing insurance requirements.
The people area encompasses customers’ exposure to slips, trips and falls, something that is common in the hospitality industry says Richard Mullaney, national practice manager at AON, as well as issues around food preparation such as food allergies and salmonella, which are covered with public and products liability. Employees and the risks they face within the kitchen area are also included in this category and Workers Compensation—compulsory in all states—is part of any core insurance offering. Key Man Insurance, which covers the cost of replacing key personnel with an individual of equal calibre, is another insurance option offered by some brokers.
Property covers the business’ fixed assets including restaurant premises, machinery and furniture/fit-out, and the issues around these such as theft, burglary, robbery and fire.
“We do a lot of profiling on the restaurant and catering industry to understand what the risks are, and the main area of concern in a restaurant is ignition sources,” says Mullaney.
Property is an area where insurance requirements will differ slightly for catering businesses, which have different exposures given they are usually mobile and are transporting, and deliver services to an outside location.
“There is an increased liability exposure because they are using clients’ premises and exposure to weather perils—particularly when operating from a marquee—is an additional hazard,” says Walker.
Insurance cover issues around the owner/operator category include how to protect the business’ income in instances of death or disability occurring outside of the business, as well as succession planning that ensures the business is transferred to the next generation in an equitable manner.
For new entrants to the hospitality game ready to set up their insurance policy, there is certainly much to take in. So where do you start? The first step is to get all the basic information together, since insurance coverage varies between individual businesses depending on factors including the size of the premises, potential exposures and client requirements.
“It is important to provide an insurance product that provides flexibility and choice for the client—no two businesses are the same. Cover can vary from an extensive accidental damage cover with all the bells and whistles to a specific industry package product or a limited cover that focuses on the major perils,” says Walker.
Other details to provide to the insurance broker and which will have a bearing on the insurance premium are: the location and type of restaurant; business financials, projected turnover and value of assets; hours of operation; seating capacity; age, condition and construction of the premises; electrical and kitchen maintenance; security such as alarms and safes; fire protection such as sprinklers, fire alarms, portable extinguishers and fire blankets; management experience; previous claims history of the owner, and whether the restaurant will be a venue for live music or shows.
In addition to the details, hospitality business owners need to understand the risks the business faces in order to manage and remove those risks. They must also obtain correct valuations of the business’ assets and understand the value of replacing property.
“Clients have a duty to declare the values of their property and this makes it easy to set the level of insurance cover. The biggest problem we are finding with small-to-medium enterprise clients is that 95 per cent are under-declaring their assets—they are typically declaring about 60 per cent of the value that needs to be insured,” says Mullaney.
Walker confirms the most common trap owners of restaurant and catering businesses fall into is not investing the time and money to make sure they have adequate insurance.
“Without adequate insurance 70 per cent of small businesses fail within 12 months of suffering a major loss, according to the Insurance Council Australia’s Non-insurance and Underinsurance Survey undertaken in 2002,” he says.
Jaspers Restaurant (Jaspers), operating in a 19th century sandstone cottage located in the Sydney suburb of Hunters Hill, is one food services business that has avoided the underinsurance issue by valuing the restaurant’s replacement value (including contents) at more than the value of the restaurant. Richard Nicholl, managing director of Jaspers, believes having this important knowledge stems from finding the right insurance broker to talk through all the issues.
“At the moment the restaurant is worth about $500,000, so we are insured for $700,000 and this would cover us for the contents, rebuilding the restaurant and other incidentals—like keeping staff on and the chef. You have to take into consideration how much money you are going to need if you lost your business tomorrow. You can not undervalue your business,” he says.