Our restaurant clients fit into one of three classifications. The first classification is the small restaurant. These establishments usually are run by owner/operators with three to five employees and have annual sales under $400,000. They are often located in shopping centers. They typically have fewer than 15 tables and may have small outdoor patios. Their annual premiums range from $750 to $2,500.

The majority of our clients fall into the second category: family-style restaurants. These clients have between six and 25 employees and provide table service for breakfast, lunch and dinner. Gross annual sales are usually between $400,000 and $1 million, and the annual insurance premium for these clients ranges from $2,500 to $7,000.

In the third category, fine dining establishments, annual gross sales are usually a minimum of $1 million and may be as high as $5 million. These establishments have anywhere from 50 to more than 100 employees, and typically serve either lunch and dinner or just dinner. The annual premium for a client in this group starts around $7,000, and in some cases might be as high as $30,000.

Farmers market

Approximately 25,000 restaurants and cocktail lounges operate within 60 miles of our offices. To market efficiently, we study what types of establishments we've been most successful with, then focus on those prospects that best fit our client profile.

Our prospecting efforts begin largely with in-house telemarketing and referrals from current clients. The primary source of information for our telemarketers is a database of more than 12,000 expiration dates that we've accumulated over the years. The database alone often results in more leads than we can respond to. We supplement it by obtaining lists of newly opened businesses, and we also find prospects in fine-dining magazines and from responses to our direct-mail and other advertising efforts.

Many of our clients send us referrals. We also ask them for referrals when we close a sale. When we visit a new client to finalize a sale, we often bring along a list of other restaurants in the area. After we've finished our paperwork, we explain that just like them, a lot of our business comes from word of mouth. Then we review our list with them to see if there are any nearby restaurants that they can refer to us. This usually leads to a higher-quality referral than if we just ask them to give us the names of other restaurants off the top of their heads.

Qualifying and quoting

Once we commit to quoting coverage for a prospect, a producer will visit the prospect two or three times and often invest eight to 10 hours obtaining information needed for a quote. Before we do this, we qualify a prospect to determine whether we have a realistic chance at earning the business.

Our main qualifying criteria are cooperation and eligibility. Prospects reluctant to answer our initial questions or provide information on their current policy and financial data are less likely to trust us to write their coverage, even if we have the best proposal. We look for prospects who understand that they must give us complete information to get a competitive quote. We obtain basic information about a prospect to improve our closing ratio by determining whether it is eligible for our most competitive programs. We get such information as a loss history, the age and total area of the building, the establishment's number of employees, its closing time and whether it has live entertainment or dancing.

We find out who a prospect's current carrier and agent are. It's helpful to know whether the prospect is buying coverage through a brother-in-law or other close acquaintance. In these situations we're not likely to convince the prospect to make a change. Sometimes we find that an establishment is already in a competitive program.

Ordering up coverage

If quoting just a few lines of business gets our foot in the door with a prospect, we'll do it. But we prefer to write all of our clients' coverage needs-and most of our clients like it that way, because it's obviously easier for them. We write the majority of our package policies on a Business Owners Policy (BOP) form through various insurance carriers. These policies offer replacement-cost valuation and business income coverage that is 12-month, actual-loss-sustained (ALS) and generally include a host of automatic property extension coverages.

Each client's coverage varies, depending on the type and size of establishment and whether it is a restaurant or a bar/nightclub. Among some common aspects and variations of coverage are the following:

? Building coverage: About 80% of the businesses we insure lease their space, so we don't write much building coverage. When we do, it's important to make sure the building is adequately insured. If limits seem low, we suggest that the establishment get an appraisal or inquire with its financial institution. Another important item is ordinance or law coverage. Owners of older buildings may be required to make costly upgrades in order to meet the constantly changing building codes required by most cities in the event of a complete or partial loss.

? Business personal property: Most carriers cover tables, chairs, kitchen equipment and tenants improvements and betterments under a single category, but some carriers offer separate rates for these items and offer discounts when the items are categorized correctly. This makes knowing the details of a carrier's coverage categories important.

A tenant's improvements and betterments usually become the landlord's property when a tenant vacates. New occupants may incorrectly believe they own (and must insure) all fixtures and permanently installed equipment. Advise your clients to discuss this issue with the landlord and carefully review the lease to ensure proper coverage.

? Theft coverage: Most insurance carriers require restaurants to have a monitored central station burglar alarm before they will offer theft coverage. Money and securities coverage provides protection for theft of cash both in and out of the premises. We ask our clients what's the maximum amount of cash they might have on premises at the end of a busy weekend, since this is likely to be the time of greatest exposure. Employee dishonesty is also an important coverage. If a theft of contents, stock or cash involves a member of the staff, payment could be denied without this coverage.

? Business income: BOPs offer business income coverage on a 12-month, actual-loss-sustained basis, whereas most package policies offer a set amount. When selecting a BI limit, it's vital to understand the full amount of income that would be lost in a given period-especially if a client's previous policy provided ALS and the new policy offers a specified amount.

? Liability coverage: Most of our restaurant clients' leases require them to obtain a $1 million per occurrence/$2 million aggregate liability limit. Some larger property owners are beginning to request higher limits. The most common liability claims for restaurants are slip-and-fall incidents, patrons who chip a tooth while eating, and those who claim they became ill after eating at an establishment.

Liability coverage is written differently for establishments with high alcohol sales, where assault-and-battery cases are more frequently the source of claims. Most carriers exclude coverage for assault and battery completely. Some may offer a sublimit anywhere between $25,000 and $250,000, and others may offer coverage for “patron-to-patron” incidents but exclude coverage for “employee-to-patron” incidents.

For restaurants, premiums for liability coverage are based either on square footage or gross receipts. (Insurance for alcohol-related businesses usually will be based strictly on receipts.) A small establishment doing huge sales in Beverly Hills will get a better price with a carrier that uses square footage as its premium basis. A barn-like restaurant in a rural area, with relatively less sales, would be better off in a receipts-based program.

? Liquor liability and non-owned auto: Liquor liability coverage protects against claims arising out of the negligent serving of alcoholic beverages. Depending on the state in which an establishment operates, this may include “over-serving” intoxicated patrons and serving minors. Non-owned auto coverage for restaurants is increasingly difficult to obtain because of the increased exposure of food delivery. Carriers willing to offer this coverage generally apply a “food delivery” exclusion.

Submission stew

Before we make submissions to carriers, we like to collect valuable data not found on the application, including a copy of the restaurant's menu, information about any awards it has won and favorable reviews it has received. This helps our agents and underwriters understand what type of clientele is coming in and what type of establishment they're dealing with.

Inspecting an establishment is important in preparing the submission. With our experience in the niche, we've received enough suggestions from carriers to know what “hot spots” to look for during an inspection. We might also include digital photos.

Proof of service for a few items-such as flue cleaning, a fire-suppression system and fire extinguishers-is important. We also include narrative descriptions of any past losses, along with an explanation of steps taken to address issues raised by them. For instance, if a client had a slip-and-fall claim, we might demonstrate to the carrier that since the incident, the client has put non-slip strips on its steps, added handrails and improved the lighting.

Carriers are interested in insureds' financial information, especially with new ventures. Most restaurants that fail do so within their first year. In extreme cases, financial difficulty may lead to arson. Therefore, carriers request a r?sum? and maybe some personal financial information from owners who are new in business.

A restaurant is far easier to inspect for potential problems than a nightclub. When we interview bar and nightclub clients, we ask about key aspects of their management and operations. We want to know how they prevent underage drinking. Do they use hand-stamps or wristbands to identify those eligible to drink? Have servers and bartenders undergone any formal beverage-service training?

Security practices are especially important with these establishments. We want to know if they employ their own security staff and what their procedures are for removing a rowdy patron-do they always call the police, fill out their own incident report, etc.? If they hire an outside agency to provide security, we need to know if that agency has provided them with a certificate of insurance naming the establishment as an additional insured and demonstrating that the agency has workers comp coverage on its own employees.

Presentation is everything

Restaurant and bar owners are visual people who succeed in no small part by being sensitive to the look and presentation of everything about their business-from the overall ambience to the presentation of food. We present our proposals with this in mind. We stay away from long, overly detailed documents and keep things simple. We build our presentation on four factors: the strength of the carrier, the coverage details, the cost and the service we can provide. Before we present, we learn enough about the client to know which of these factors to emphasize.

New on the menu

At least 60 days before a policy expires, we pull the file and request loss runs. We send clients a questionnaire that asks about any changes in sales figures or the square footage of the establishment, as well as other factors that might alter the premium or change the client's eligibility for certain programs. If you're not careful with this at renewal, you might someday find out that the nice, quiet, family-style Italian restaurant you began insuring three years ago has added karaoke and dancing on weekends, and might not be the same risk you started out with.

We contact clients 45 days before renewal. We try to keep accounts with the same carrier, but we must get our clients the most competitive programs available, so we shop rather aggressively. We try to have renewal quotes in our clients' hands two weeks before the current policy expires, so that we can review the quote and confirm that they want to continue with us.

Big tipper

Success in serving the food and beverage niche requires a strong understanding of the industry and of the carriers' programs you're offering. This leads to a better experience for the insured and a higher hit ratio with prospects. Developing expertise and knowing what your clients and prospects need and what your carriers want can lead to a successful experience and rave reviews.

Cliff Ziegler is marketing director at Right Insurance Marketing. Since joining Right Insurance in 1993, Mr. Ziegler has written more than $12 million in premium for restaurant insurance. Readers may contact him at (714) 636-6491 or by e-mail at [email protected].