restaurant insurance

Restaurant insurance is a murky issue during a pandemic

Operators must protect themselves and their business with pandemic uncertainty continuing indefinitely.

By Tom Nightingale

Over 10,000 restaurants across Canada have been forced to close since the beginning of the pandemic lockdown in March 2020. The pain has been felt nationwide, and the laundry list of problems to solve might feel never-ending. But, as tough as it might be, operators cannot forget about restaurant insurance.

With no other industry quite as devastated as foodservice and hospitality, it’s imperative that restaurant owners and operators find ways to protect themselves.

COVID-19, naturally, has made the world of restaurant insurance a little murkier, and that’s been reflected in the demand of operators. Danish Yusuf, CEO of Toronto-based digital commercial insurance company Zensurance, tells RestoBiz his firm has recently seen a 50 per cent increase in demand from small retailers. Yusuf has been privy to just how much many owners and operators have been struggling.

Eternal struggle

Restaurant insurance is a complicated topic with many intricacies. For small businesses and independents, particularly, it can be something of a nightmare. The difficulties of securing insurance in a volatile industry like this one are manifold even at the best of times. And this is not the best of times at all; we’re a thousand miles away from the sunniest of days in foodservice and hospitality.

“Insurance has always been a tough space for the hospitality industry and COVID-19 has made it so much more difficult,” Yusuf tells RestoBiz.

Zensurance, whose mission statement is to help small businesses manage their liability and property insurance needs, is by no means the only insurance company operating in the field of foodservice. After all, it’s the smaller enterprises that often need the most help, and Yusuf laments that the needs of “the little guy” have often been historically overlooked.

The first and most ever-present risk to smaller-scale foodservice operations is mere survival. That has been exacerbated hugely by the pandemic as many operators struggle to maintain enough cashflow to keep paying rent and their fixed costs. In many cases, revenue has plummeted to unprecedentedly low levels with indoor dining largely closed across Canada.

That, of course, is an eternal struggle. But what was already one of the more precarious industries to operate within has become a veritable minefield during the pandemic.

Problems of pivoting

A major way in which COVID-19 has changed the game is that it has required operations to pivot dramatically. A primary example would be the shift of focus from the traditional, indoor, physical dining experience to off-premises consumption, to delivery and takeout, and increased digitization of operations. Foot traffic has been almost eliminated for many establishments in a short period of time.

“What happens if, say, society only moves back 70 per cent toward the pre-pandemic norm?” asks Yusuf, rhetorically. “How do restaurant owners and foodservice providers adapt their business models to that?” He gives the example of a downtown Toronto sandwich shop which may have traded largely through office workers on their lunch break. If many workers never return to offices full-time (or at least not foreseeably), how does the operator make up for that huge chunk of lost revenue?

That question may be theoretical but, in reality, it’s a situation faced in practice by thousands of businesses. So many restaurants, cafes, bars, hotels depend on the busy working day, on high volume of foot traffic and returning customers.

The loss of in-person dining has accelerated the seismic change that was already being seen in foodservice: the increased focus on off-premises consumption and digital operations.

Through sheer necessity, says Yusuf, many operations are now delivering food themselves for the first time. That opens a huge can of worms from a restaurant insurance perspective. In many cases, a business’ insurance may not cover them for going out on delivery; say, if they don’t already have commercial auto insurance.

Myriad other sticking points have emerged from the pandemic, too. Businesses may be selling prepackaged food now, and insurance may not cover that side of operations because it’s suddenly a very different business. The increasing move towards digital operations also increases cybersecurity risks, something that may not have been top of mind prior to the pandemic and thus may be omitted from coverage.

There are also emerging risks around unoccupied locations. “Issues like vandalism or burst pipes in winter often aren’t thought of because you’re used to your restaurant being open five to seven days a week,” notes Yusuf. “Now, if it’s vacant for two days and a pipe bursts, that can destroy everything you have.” By highlighting these specific issues, unfortunately, we’re only scratching the surface.

Muddy waters

As one you might expect, the biggest points of debate when it comes to restaurant insurance right now concern business interruption. Back in March of last year, many policies were unclear about whether COVID-19-related losses would be covered. By the time we reached April or May, with some form of shutdown in place nationwide, pretty much every policy issued had an explicit exclusion, explains Yusuf. “Basically, everything related to COVID-19 is not covered. It’s unfortunate, but basically every company has taken that stance.”

The problematic ambiguity, then, is what happens to policies that existed before? Unsurprisingly, industry groups and advocates and major insurance companies are generally falling on either side of a divide. The industry is trying to negotiate for insurance coverage and/or wider legislation on the matter, while insurers’ general argument remains that the drastic change in circumstances affects policies. “Like in life insurance, pre-existing conditions are generally not covered and now that COVID-19 is a known factor, it’s being excluded on that grounds,” explains Yusuf.

Moving forward, in areas where on-premises dining remains a possibility, and when it inevitably returns in the future, a preeminent problem with restaurant insurance will be how to deal with positive COVID-19 cases on-site.

Yusuf notes it’s uncertain how the courts will land on that. “Say someone comes to your location and catches COVID-19 and it can be tied back to your restaurant in some way. Does that liability fall onto your restaurant or the individual, or both? Will policies pay out for that or not? They were certainly never intended for that.” He adds that while companies like his try to work with brokers and insurance firms ensure adequate coverage, that will ultimately come down to provider’s own decision.

Put simply, foodservice and hospitality is a world of risk right now. The rate of change has been phenomenal, and that means restaurant insurance – like restaurant operations themselves – is constantly evolving. What’s not available today may be available in three months.

How to equip yourself

So, for the thousands of businesses faced with these mounting risks, what can be done to safeguard yourself from an insurance standpoint?

Yusuf emphasizes that the critically important points are a) know your business inside out, and b) get written acknowledgement from your insurer or broker of how your business has changed and where that leaves your coverage.

“If your premises is vacant, make sure you have a vacancy permit. If you’ve done online sales, make sure your policy is adapted to allow for it,” he advises. General things like fire, theft, water damage should still be covered, as long as your policy allows for it.

When it comes to shifts in operations, some providers’ policies are generous and cover certain shifts, but others are very strict and may not offer adaptable coverage. “The big worry is that so much is changing and so quickly,” he laments.

What will remain crucial is accounting for the federal, provincial, and municipal recommendations in place at the time. “It’s possible that if the owner/operator is following guidelines the best they can and something still happens, they may be cut some slack, whereas if they were ignorant or in contravention of the laws, they could be liable.” In short, staying abreast of provincial and health recommendations is absolutely key.

Ultimately, says Yusuf, the best advice is to inform yourself as well as you can. Make sure you have a firm handle on your business, shop around for insurance, make sure you understand everything you need to, and get everything in writing.

“This is the time when operators needs to start understanding insurance because of the impact it can have,” he concludes. “Ask your broker or provider to explain the coverage: what’s excluded, what’s required. In short, make them earn their money.”

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