Guide to Choosing Insurance for Your New York Restaurant — Things to Consider
Running a business in the hospitality industry in New York is never an easy thing to do. Competition is intense, the public’s desire for something new never ends and costs seem to increase every year. Of the many restaurants that open in New York City each year, about 80 percent of them will be out of business within five years.
There are strategies, of course, to be one of those restaurants that lasts longer than five years. One of the best strategies is to make sure you have the right insurance for your restaurant or bar. Insurance can help you cope with the multitude of problems that can sometimes happen to a restaurant owner, such as liability problems, food spoilage, workers’ compensation issues and even car problems.
The Right Insurance Can Both Help You Save Money and Protect Yourself in the Long Run
People in the hospitality industry, especially those just starting up or looking to renew old coverage, ask themselves a few questions. Usually, they want to know:
- What type of coverage does my restaurant need to have?
- What will the insurance cost per month?
Most of the time it depends. Running a restaurant, pub or pizza parlor involves several different variables, and there are different risks with each variable. How you want to deal with those risks will determine what kind of insurance you need.
Here are some ideas to think about before you choose insurance for your restaurant:
1. How Is Your Restaurant Classified?
If you run a bar that features music three nights a week and is open until 2 a.m., your risks will be different than a restaurant which is open from 6 a.m. until midnight. So it is critical that you make sure your business has the proper classification to deal with workers’ compensation issues and any general liability insurance needs.
The best way to deal with this is to speak with an experienced insurance agent. You’ll need to be honest about what is involved in your business on a day-to-day basis. You want to be especially clear about serving alcohol because of the high risk for large potential losses if an alcohol-related incident occurs.
2. What Are Some of the Insurance Options You’ll Need to Consider?
We will go into depth on some of these issues below, but here’s a list of insurance concerns you want to think about:
- Insurance for your property
- Insurance against fire damage
- Insurance against food spoilage and contamination
- Personal property insurance, depending on whether you own your property or lease it
- Insurance that will help cover business expenses if you are forced to close for some time
- Liquor liability insurance
- Cyber liability insurance
- Workers’ compensation insurance in case any of your employees is injured on the job
- Comprehensive automobile coverage
- Coverage for specialty issues
What Factors Do Insurance Companies Take Into Account When They Create Policies?
Insurance companies consider how your restaurant is classified, of course, but many other factors impact your restaurant insurance costs:
- The location of your restaurant
- The size of your restaurant
- Your sales totals
- The number of people on your payroll
- The activities that take place in your restaurant or bar
- Your hours of operation
- The amount of alcohol you sell
- Your loss history
- How long you’ve been in business
- The requirements of your lease if you rent your restaurant space
- If you’ve had coverage in the past, the insurance company will check to see if these levels are appropriate in your current situation
Additionally, if you lease your space, you may need to meet certain insurance requirements or risk violating your lease.
Remember — what you will pay for insurance depends upon the kind of hospitality business you own. “Restaurant” insurance actually applies to a variety of companies including bars, taverns, nightclubs, delis, sports bars, food trucks, fast food restaurants and full-service restaurants, to name just a few.
Various Kinds of Restaurant Insurance
Now that we’ve outlined some of the issues involving restaurant insurance and the kind of restaurant insurance you may need, let’s look at them a little more in depth.
1. Liability Insurance
Regardless of whatever other insurance coverage you consider, you should always start with basic liability. Basic or general liability insurance protects your business from personal injury claims, claims that your food made people sick or injuries caused by errors in advertising that could lead to damages for your restaurant.
Think about what happens if your customer slips and falls on a newly washed floor or if one of your staff accidentally spills a bowl of boiling soup on a client. Liability coverage can also include in protection against a customer who says eating your food made them sick.
The reason liability insurance makes sense is that no one can protect your business against all accidents or food problems all the time. And in the case of food problems, those issues can often be out of your control. A customer may eat bad lettuce before food inspectors issue a recall.
Many restaurant owners believe they only need about $1 million in liability for a New York restaurant. That’s probably too low. It makes more sense to purchase coverage that will pay as much as $2 million per event with a $4 million aggregate limit. Even if you haven’t done anything wrong, think about how much you pay just to defend yourself against a frivolous lawsuit.
2. Building and Contents Insurance
There is a long list of things that can happen to your restaurant:
- Pipes burst
- Grease fires
- Damage from severe storms
- Vandalism and theft
- Propane explosions
- Acts of terrorism
Building and contents insurance, which may also be known as commercial property insurance, protects your restaurant if it is damaged, destroyed or rendered unusable. When you own your property, this coverage is essential.
Meanwhile, contents coverage protects what’s in your restaurant regardless of whether you lease or own your property.
Building and contents insurance protects:
- The building you own
- Your restaurant signage
- The food preparation equipment in your restaurant
- Your restaurant’s furniture
- Your inventory
- Even the landscaping around your restaurant if you have any
3. Business Income Insurance
So you’ve protected your building and your equipment. What are you going to do now if you have a grease fire or some other incident that closes you down for several days or even weeks? Who is going to compensate you for all that operating revenue you’ve lost while you’re waiting to reopen?
This shows the need for a New York restaurant to include business income coverage. It provides for the revenue that you lose while your building is being fixed. You can continue to cover your operating expenses and your payroll even if your doors are still closed.
It’s essential coverage to help keep your business in operation during any period that your restaurant is being repaired or restored.
4. Food Spoilage and Contamination Insurance
It’s New York — now and then there are going to be power outages. Perhaps you’re working in an older building that experiences electrical shorts on a regular basis. What happens if one of these electrical shorts takes place in the middle of the night when no one is around, your refrigeration is turned off and all your perishables go bad? Now you have all this food that you can’t serve your customers and need to replace.
Food spoilage insurance, also called inventory insurance, will cover you in case you accidentally lose perishable goods.
It’s also a good idea to think about food contamination insurance. Sometimes the problems can occur farther up the supply chain, and you have no control until it’s too late. Or an employee may not be careful about the way they handle food — they don’t wash their hands properly or store the food properly.
Your restaurant could be closed down because of a health board violation or a foodborne illness outbreak — think of the E. coli and lettuce contamination outbreaks over the past few years. A food contamination policy can cover costs like replacing the food, the income you lose if your restaurant is shut down, medical treatment if your employees get sick, cleaning up after a contamination incident, even advertising to let people know you’re back in business and the problems have been fixed.
5. Cyber Liability Insurance
Welcome to the 21st-century. You might think your restaurant is too small to worry about cyber liability, but every business needs cyber coverage in today’s world. Several of the most recent large data breaches occurred because hackers were able to access larger databases through small businesses because of partnerships or shared data vendors. If you don’t have data breach insurance, even larger restaurants may end up closing their doors permanently because they can’t pay all the damages that result from lawsuits.
In most cases, data breach policies only cost a few hundred dollars, depending upon your restaurant’s revenue. One study showed that hackers steal 24,000 records on average when they hack a restaurant. This resulted in an average cost of about $3.5 million. In 2016, the average cost of each record stolen during the hack was about $141. That means that even if 100 of your clients fell victim to the hack, you could end up paying about $15,000.
6. Liquor Liability Insurance
It’s a busy night at the bar, and your bartenders are serving drinks fast and furious. They may not notice that they are serving alcohol to a customer who’s had too much.
Liquor liability insurance will protect you if your employee over-serves alcohol to someone who then hurts someone else or damages property. It also protects you if the overserved customer leaves your bar, gets into their car and then has an accident.
Your liquor liability costs will depend upon your kind of business and your hours of operation. A bar open until 2 a.m. every night will pay more in liquor liability coverage that a restaurant that may serve customers drinks with their meals until midnight.
7. Workers’ Compensation Insurance
All businesses in New York are required to carry workers’ compensation coverage for all their employees. This includes part-time employees and any family members who work for the business. The policies can come from a private insurance carrier or the insurance fund of New York State, or businesses can be self-insured. In New York, workers’ compensation is a no-fault insurance system. It doesn’t matter whether the injury was an employee’ s fault or the owner’s fault. In return, the employee cannot sue the employer.
More than a few carriers require that you pay about 25 percent of the total premium before you can get coverage. For many restaurants which operate on a very thin profit margin, the money to cover workers’ compensation can better be used on other expenses.
An option you might want to consider is pay-as-you-go workers’ compensation insurance. This is especially true for a new restaurant which may not know how many employees will be working for them from month-to-month. This option allows a restaurant to pay a premium based on their actual monthly payroll rather than an estimated payroll. This may result in you paying only a few hundred dollars each month when you’re starting up.
As revenue increases and it becomes easier to pay any additional premium, pay-as-you-go ensures a smoother transition.
8. Comprehensive Car Insurance
You run a pizzeria, or you belong to a food service that allows people to order their food online and have it delivered to them. You hire employees to deliver the food using their own cars. Unfortunately, accidents occur. If your employees use their personal cars to deliver food or even to run errands on their way to or from work, your business may be responsible for any accidents that occur when they are involved in work-related activities.
Think about purchasing hired and non-owned commercial auto insurance policies which can protect you when employees use their own vehicles or rented cars or trucks.
Find an Insurance Agent Who Knows About Restaurant Insurance
As you can see from the above list, restaurant insurance needs can be quite specific. So it’s important to find an insurance broker that specializes in dealing with restaurants. Your regular insurance agent who handles your home or personal car insurance needs may not be the right insurance agent for what you need for your restaurant or bar. The right insurance broker knows where to find the best policies for your business and can save you money.
Let Kokkoris Insurance Services Help You Find the Insurance Coverage You Need for Your New York City Restaurant
One of the best ways to find the right insurance for your restaurant is to work with an experienced insurance broker. At Kokkoris Insurance Services, we’ve been providing insurance for a vast group of customers including those who work in the hospitality, restaurant, and bar and lounge businesses. We know and understand the insurance coverages you need to make sure your restaurant, bar or any other hospitality outlet is protected. For over 25 years, we’ve offered dedicated service representatives who understand your business, your goals and how we can help protect those goals.
You can call us at 718-728-0606 or visit our contact us page where you can leave us your contact information and some information about the insurance needs for your business. A member of our team will get back to you as soon as possible.