Restaurant Insurance Programs – Watch Out For That Coinsurance Clause

Restaurant owners are busy individuals with little time to delve into the details of their restaurant insurance policy. So it’s little surprise that few of them understand the coinsurance clause on their policy. And often, those that are aware of it may not correctly understand how it is applied in the event of a loss. All of this can lead to the restaurant owner spending more out of pocket funds after a large loss than he or she expected. Talk about a cash flow killer.

First of all it is helpful to understand that not every restaurant insurance program will even have a coinsurance clause built in to the policy language. If your restaurant insurance is written on the business owners policy form, then you will more than likely not have any coinsurance clause to deal with. But if you are in an older building, or if you have high liquor receipts or have had past losses or are insured with a company that doesn’t specialize in restaurants, then your property insurance for your building and your contents might be written on the commercial package policy. If that is the case, then you will likely have a coinsurance clause embedded in your policy language.

So what is this coinsurance clause exactly? Well, it is a clause in the policy that helps force the policy holder to purchase enough insurance to cover a total loss of the property. Since most losses are partial losses, some crafty restaurant owners would attempt to purchase only enough insurance to cover the partial loss and not a total loss. If everyone were able to do this, then insurance rates would be much higher than they are now.

Here’s how a coinsurance clause works. Let’s assume that you have replacement cost coverage on your building and contents and you are in a building worth $1,000,000 and have contents valued at a replacement cost value of $300,000. If your policy has an 80% coinsurance clause, then to avoid the coinsurance penalty at the time of a loss, you need to carry a building limit if at least 80% of the replacement value of the building or in this case $800,000. Likewise, you must purchase a contents coverage limit of at least 80% of $300,000 or $240,000. As long as you do so, then you face no coinsurance penalty in the event of a loss.

Now let’s see just how the coinsurance penalty would work if you were not in compliance with your policy’s coinsurance clause. Taking the above example, let’s assume that you only purchased $600,000 of building coverage and $100,000 of contents coverage. And now let’s assume you have a small fire loss and the damage to your building is $10,000 and your contents loss is $5000. Here’s where some restaurant owners who are aware of the coinsurance clause don’t have a clear understanding of how the coinsurance penalty works. Many think that if you don’t carry the 80% required by the clause, then the insurance company will only pay 80% of the loss. But the reality is more brutal than that. You see, the insurance company will only pay the percentage of your loss that is in ratio to the percentage of coverage that you carried. Let’s crunch the numbers. In this example you purchased $600,000 of building coverage when you should have purchased $800,000. If we take a ratio of these two numbers then we divide 800,000 by 600,000. The result is 6/8ths or 75%. So you purchased 75% of the amount of insurance you should have purchased so you will only be paid 75% of the claim. If we ignore the deductible in this example then you would only be paid $7500 for the $10,000 damage to your building. Just think if the loss had been $100,000. Now you are out $25,000 on the claim. That’s going to kill your savings and your cash flow. In the case of your contents coverage, your ratio of what you purchased to what you should have purchased is 100,000 divided by 240,000 or 41.6%. Multiply that by the loss of $5000 to the contents and you see that the company is only going to pay for $2083 of that $5000 loss.

It’s clear from these notes that restaurant owners need to be very aware of any coinsurance requirements that are on their restaurant insurance policies as ignorance could lead to a financial disaster after a large loss. At Clinard Insurance Group in Winston Salem, NC, insuring restaurants all across NC and SC is our specialty. We have designed specialty Restaurant Insurance Programs for many different types of restaurants so that you don’t find yourself as a square peg jammed into a round hole. We have created specialized programs for Fine Dining Insurance, Casual Dining Insurance, Fast Food Insurance, and Bar & Grill Insurance as well as Catering insurance so we can help you with your restaurant insurance no matter what type of restaurant you own. If you would like help with your restaurant insurance issues, or if you would like a quote on your current restaurant insurance, please call us toll free at 877-687-7557, or visit us on the web at www.TheRestaurantInsuranceStore.com.

The source information for this blog can be found at The Restaurant Answer Guy blog site.

Restaurant Insurance – The Hidden Rate Bias Against BBQ and Seafood Restaurants

As a restaurant owner you get to see the world from the kitchen looking out. In the insurance world I get the same type of view, one that my restaurant clients don’t see. And from this view I can see how some types of restaurants face hidden rate biases that drive their insurance costs up. And I can also see ways that the restaurant owner can avoid these biases. One of these biases has a big impact on BBQ restaurants and seafood restaurants.

You see, if you were to call up the average insurance company underwriter and tell him that you want to write a package policy for the local BBQ joint, you would find that most underwriters would shy away from that account. Why? Well, in the past there have been food borne illness claims associated with barbecue and seafood. And so the underwriter will check his notes and tighten up his rates a bit to protect against the possibility of having to pay this type of claim for you.

If you are the seafood restaurant owner, you are never privy to this conversation. Chances are you will never hear about it or know it happened. But it does happen and your rates are higher because of it. So what can you do to protect your restaurant from this inherent bias on your rates? The answer is that you need to deal with an insurance agent who has the experience of handling hundreds of different restaurant clients so he knows how to work the system to get you a better rate. In addition, you want the agent who has access to insurance companies who specialize in writing restaurants. There are two reasons for this.

First of all, the insurance company that actively seeks business from restaurants will have the law of large numbers working in their favor. Because they write so many BBQ or seafood restaurants, they will have a better understanding of exactly what the food borne illness risks mean and they will not have to overcharge to account for something that they don’t fully understand.

The second reason for you to seek out a company with an established restaurant insurance program is that these companies will be able to offer you loss control support and help to prevent this type of claim. And by doing this, they will be able to offer you a better rate as well. It is a win win situation for the insurance company and for the restaurant owner.

At Clinard Insurance Group in Winston Salem, NC, we specialize in helping restaurant owners with all of their insurance policies as well as their loss control needs. We have specially designed programs for your restaurant, whether you are casual dining, fine dining, fast food, bar and grill, or even a caterer. We want all of our restaurant clients to be informed insurance consumers. If you need help with your restaurant insurance, please call us, toll free at 877-687-7557 or visit us online at http://www.TheRestaurantInsuranceStore.com.

When it comes to restaurant insurance, you need a middleman

The old saying, cut out the middleman, might seem at first blush to apply to shopping for insurance as well… but a second look will prove that you not only need a middleman, you need an independent middleman . This is especially true when it comes to restaurant insurance. The middleman will not cost you money here, he will actually save you money, not only on your restaurant insurance purchase, but even more so if you experience a claim. Read on to find out exactly why.

First of all, let me say that when I discuss the middleman in an insurance policy purchase, I am talking about a truly independent middleman, in this case someone who understands the ins and outs of restaurants, an independent insurance agent who can represent your needs and protect your rights. Direct writer insurance agencies that represent only one company and have only one market to offer you…is like having to depend on one vendor for everything, even if they’re not the absolute best at it. In addition, if you purchase insurance from an 800 phone number or a company that has you quote your own policy online, you are not going to cut out the middleman cost, you will only be cutting out the service. This becomes glaringly obvious when you compare the rates of direct writing insurance companies against those offered by independent insurance agencies. This is true no matter the type of restaurant you have, fine dining, fast food, bar and grill, or even a catering company. Each restaurant is unique and a “one size fits all” mentality just isn’t in your best interest.

There are two ways an independent middleman can help you without raising the cost of the insurance in either case. I will take them one at a time.

First is the purchasing process. Let’s face it, insurance is a complicated legal contract, designed to protect you from certain types of financial ruin. Buying insurance is not like buying a head of cabbage... each restaurant’s situation and insurance needs are different and if you don’t have the help of someone who understands the contract intimately, someone who is there to help you figure out your specific needs, then chances are you will make a mistake somewhere. And the mistake could cost you everything you have worked so hard for. This is a corner you just don’t want to cut.

The second way an independent middleman can protect you is as a buffer between you and the insurance company when it comes to claims questions or claims help. Let me give you an example. I had a prospect (now a client) come to me for help as their Worker’s compensation costs had gotten totally out of control. An in depth review revealed several small claims had been filed which caused a frequency problem on his worker’s compensation and drove his experience modifier through the roof. He never realized that he had an option on how to handle these small claims and that by handling these claims internally he could actually earn a credit on his restaurant workers compensation insurance premium. His previous agent who represented a direct writer gave him an 800 number to call and never offered guidance on how to control his work comp costs.

Remember, with insurance a middleman will not cost you money, an independent middleman will actually save you money. At Clinard Insurance Group, in Winston Salem, NC, we are an independent middleman for our clients and we add value to their insurance buying experiences every day. We specialize in Fine Dining Insurance, Casual Dining Insurance, Fast Food Insurance, Bar & Grill Insurance as well as Catering insurance so call us toll free at 877-687-7557 or visit us online at www.ClinardInsurance.com.


The source information for this article can be found at Restaurant Insurance Blog.