The hospitality industry has been one of the markets most deeply impacted by COVID-19 and full-service restaurants, the largest element of that industry, have been forced to deal with some significant changes. Faced with mandated dine-in closures and reduced foot traffic, restaurant owners have been met with the challenges of developing a new business model to ensure survival while also being hit with increasing insurance premiums.

The market continues to see rates harden, a change occurring in the restaurant market before the pandemic. This trend is expected to continue as the impact of COVID-19 unfolds.

“How much rates go up will be determined on the outcome of coverage disputes related to COVID-19 claims and new legislation affecting how carriers respond," says Crystal Jacobs, vice president & program director, Restaurant Guard Insurance. “While some increases are based on claims being paid, one of the main contributing factors is uncertainty."

“Capacity will likely be reserved primarily for risks that have displayed a longer-term ability to adapt and proactively navigate the very fluid realities of the pandemic and those that have built the financial cushion to withstand the downturn in revenue that most are experiencing right now,“ says Tony Fenton, vice president of commercial lines underwriting and product development, Nationwide.

“Already operating on razor-thin margins, the pandemic has only accelerated the need to proactively manage and reevaluate expenses that weren't driving value," Fenton says. “Business owners are evaluating the scope of menus, maximizing seating capacity with new restrictions, adhering to cleaning requirements, making tough staffing decisions and scrutinizing expensive services such as third-party food delivery." 

“As restaurants adapt and innovate, talking to their agent or broker about potential changes in business operations will help them avoid potential costly coverage gaps," says Brian Gerritsen, senior director, IndustryEdge at Travelers. “Working with carrier partners for risk management and loss control techniques can help restaurateurs protect their employees and customers."

As owners pivot to ensure survival, “traditional exposures for restaurants should not become overshadowed by the pandemic," Fenton says. “Fires, slip and falls, foodborne illness and even weather claims still present significant exposure for these business owners and helping them make sure their policy adequately protects them from loss is crucial. Insuring buildings, equipment, inventory and business income loss at adequate levels is essential."

“Just six months ago we had standalone foodborne illness markets offering not only foodborne illness coverage but offering coverage that addressed the loss of income restaurants are now experiencing from COVID-19," Jacobs says. “Now that we are in the middle of a pandemic, the pandemic part of those policies is no longer available, but you can still get standalone business interruption for foodborne illness outbreaks. Given that foodborne illness outbreaks are more common than pandemics, I hope restaurants and their agents give more thought to this line of coverage."

Moreover, the pandemic and its impacts have only reinforced the importance of the relationship between agents and their customers working together. Nearly half—46%—of small business owners and 71% of mid-sized business owners said understanding the level of coverage they need and what is covered are among their top insurance challenges, according to a recent study carried out by Nationwide Agent Authority.

“While the major coverage question on everyone's mind right now is how the industry, government or both will respond to pandemic coverage in the future, helping customers understand what is included and excluded in each policy and whether they have coverage appropriate for their situation are among the top insurance focal points," Fenton says.

Restaurant visits declined 47% in the second quarter of 2020 compared to the same period last year, according to The NPD Group. 

“Those of us that insure restaurants have a tough road ahead of us," Jacobs says. “We have the task of selling shrinking capacity and increased rates to one of the hardest-hit industries in America."

But while the road ahead may be considered tough, working with owners to develop solution-based plans can give restaurants the opportunity to successfully emerge on the other side of the pandemic.

Olivia Overman is IA content editor.