Resilience of Restaurant Industry Continues Amid COVID, Tough Insurance Market

The restaurant industry no doubt has been among the hardest hit amid the coronavirus as a result of mandatory lockdowns during the initial phase of the pandemic and subsequent ongoing capacity restrictions and other requirements that have significantly impacted operations. Yet during these challenging and unprecedented times, we’ve seen the industry put its creativity to work to continue generating revenue. We turned to Heidi Strommen, president, ProHost USA, a division of Distinguished Programs, to share some of her insights on the state of the restaurant industry and how it’s faring, not only in the wake of COVID-19 but also during today’s hard insurance market. ProHost USA is a leading specialty insurance program for restaurants and related risks that include fine dining, family dining, fast casual, catering, and wine bars.

New Business Models, New Revenue Streams

“The pandemic has impacted our insureds differently, depending on their type of operation and where they are located,” noted Heidi. “Some restaurants are operating profitably and doing quite well considering the current climate. They’ve been able to pivot their business models and capitalize on alternative revenue sources like curbside to-go programs, meal kits and family-sized to-go spreads, and outdoor dining once it became available to them. We have clients, in fact, who are at or very near the same revenue levels year over year.”

Other establishments haven’t been as fortunate. “The success of an operation in large part depends on the COVID-related restrictions in place in the area. In some areas of the country, indoor dining is available with limited capacity while in other areas this is still not an option. You also have certain operations with greater challenges in the ability to pivot to a different business model for an additional revenue stream. For example, a fine dining establishment is all about the experience; therefore, certain changes wouldn’t make business sense. There are capacity limits and the comfort level of customers to consider before returning to indoor dining. For restaurants with no outdoor space available, the options are limited as well.”

Restaurants that depended on the patronage of the business community in their areas are also facing challenges. “Establishments relying on revenue generated off business lunches and dinners were hit hard as a result of office closures and remote work,” said Heidi. “It’s hard to attract locals in non-residential areas to an establishment.”

Customer Loyalty Helps to Keep Doors Open

On the flip side, however, restaurants with a strong neighborhood presence are benefitting from their customer loyalty. “People in their communities are committed to helping keep their local restaurants in business and continue to patronize establishments either via take-out or outdoor dining, which is great to see,” said Heidi.

Also on the Menu: Impact of Tight Insurance Market

While the exposure basis (sales and payroll) for restaurants in General Liability and Workers Compensation is decreasing, rate increases as a result of the current hard insurance market are offsetting any exposure decreases, explained Heidi. “A typical restaurant is most likely not going to see an actual reduction in its bottom-line premium.”

At the same time, with many restaurants operating in survival mode, insureds may choose to focus only on keeping essential insurance coverages for their businesses. Some may also want to scale back on limits to help trim costs. “It’s important for agents to help clients truly understand the implication of going without certain coverages and/or reducing limits,” Heidi underscored. “Walk your clients through different claims scenarios so they see how going bare or being underinsured can impact their operation. For example, if a customer decides to go without Employee Dishonesty coverage, paint a picture that illustrates the potential bottom-line effect on a business in the event an employee siphons money from the operation and there is no insurance. If a client opts to reduce Umbrella limits, be sure the insured understands how vulnerable his or her operation will be in the event of a catastrophic liability loss. You want your insureds to make an educated decision regarding their insurance program.”

Document Everything, Get Ahead of Renewals

Heidi also recommends that agents document all coverage offerings and declinations for each client. This is more important than ever, particularly in light of the skepticism that has emerged regarding the value of insurance in the wake of the pandemic. “Most restaurants filed Business Interruption claims due to COVID and were declined. Some understood that the policy was not designed to cover pandemics and viruses while others question the value of insurance.”

Getting ahead of policy renewals is also critical during this time. Remote work combined with the fact that restaurants are adjusting their operations on the fly has made it more difficult to connect with clients. “Getting renewal information to us as early as possible so we can get the answers we need along with documentation such as financials will ensure we can provide accurate and timely quotes to our agency partners to review with their clients.”

The Future Is Bright

Although this has been one of the most challenging times for restaurants, Heidi is very confident in the industry’s resilience and ability to come back even stronger. “Throughout my 30 years in insuring restaurants, I have seen the industry go through economic downturns and get through them. COVID has brought on additional challenges due to safety and health issues, but our clients continue to be resilient and are working hard to develop new business models to make them strong post-COVID. The future is bright, and we are ready to be a committed partner in their success.