Expanding a restaurant involves navigating the complex landscape of insurance, where the choices are as important as perfecting a signature dish. An outbreak of foodborne illness can devastate single-location restaurants, franchises, or chain restaurants, resulting in temporary shutdowns and loss of income. In addition, they may have to discard thousands of dollars’ worth of inventory, if not more. The restaurant can also suffer reputational harm in the media or through online reviews that lead to a substantial loss of business.
Whether you run a cozy cafe or a Michelin-starred establishment, vigilance regarding operational and reputational risks associated with foodborne illnesses is crucial. It's akin to keeping your secret recipe safe and untarnished.
How foodborne illness insurance minimizes the risk
A foodborne illness insurance policy can't eliminate the threat of an outbreak, but it can cover the financial damage for single-location restaurants, chains, and franchises. The policy provides business interruption coverage, encompassing loss of profits and reimbursement of other related costs and expenses, including loss of inventory, product recalls, reputational rehabilitation, consultant fees, and trade name costs.
Foodborne illness insurance minimizes the fallout of an outbreak and helps restaurants get their business back to normal. Insurance funds can replace inventory, cover lost revenue, or recover a restaurant's damaged reputation. Generally, foodborne illness insurance has a straightforward underwriting process, simplifying the path to securing the coverage a restaurant needs to thrive.
Have restaurateurs developed a taste for reputational damage coverage in the last couple of years? Yes, they have. The awareness is growing, but many operators will only purchase this coverage once they see a significant number of claims in the market, as they seek to understand how claims are triggered and paid and the speed of the claims process.
3 tips for expansion
- Look at where you are right now and where you want to be. The insurance world offers regional and national carriers, making selecting the right company when scaling crucial. Some carriers are highly regional, limiting their coverage to specific geographical areas. For successful expansion, you must find an insurance carrier that aligns with your growth plans, whether expanding inland versus coastal or urban versus small-town settings, ensuring it complements your desired coverage.
- As restaurants grow, it's essential to consolidate coverage start dates to maintain efficiency. Having too many "effective dates" is akin to adding too many cooks to the kitchen, leading to chaos, increased costs, and administrative complexity. The strategy isn't about bundling and saving; it's about creating a single-date audit for productivity.
- General liability or standard business interruption insurance policies typically do not provide coverage for incidents related to foodborne illnesses. While such specialized insurance comes at an additional cost, it's a crucial investment for businesses in the food industry to mitigate the risks associated with foodborne illnesses. Restaurateurs should carefully review their insurance policies and consult with an insurance professional.
AUTHOR BIO
Matt Mallory is President and CEO of Mallory Agency and is a proven property and casualty leader with a demonstrated record of advising middle and large market clients with both domestic and international exposure. His primary practice is advising larger restaurants, real-estate development, hospitality, and technology clients. Within those specialties, his team has deep expertise in building insurance programs that scale with growth, substantially transferring their risk and reducing cost.
