How insurance agents can best serve food, hospitality clients
Each year, food poisoning results in an estimated 128,000 hospitalizations and 3,000 deaths in the U.S.
Dining out is supposed to be a reward, not a punishment. Yet in the United States, where the food supply is among the safest in the world, the Centers for Disease Control and Prevention (CDC) estimates that there are about 48 million cases of foodborne illness annually — the equivalent of sickening one in six Americans each year. And each year, food poisoning results in an estimated 128,000 hospitalizations and 3,000 deaths.
Restaurant or street vendor dining causes only a percentage of those numbers. But in 2020, when eating out dramatically declined during the COVID pandemic, the CDC reported that foodborne illnesses, “fell by 26%, the largest single-year change during 25 years of FoodNet surveillance.”
Despite the effect of the pandemic, overall, the hospitality industry has seen a rise in claims over the last two decades. While claims can result from biting into foreign objects, chipping teeth, or even slipping and falling, a study published in the July 2022 edition of the Journal of Food Protection found the percentage of foodborne illness outbreaks attributed to restaurant settings increased from a mean of 41% for the period 1967 to 1997 to a mean of 61% for the period 2009 to 2015. And a 2018 study conducted by researchers at Johns Hopkins University’s Bloomberg School of Public Health put the cost of managing just one outbreak of foodborne illness between $4,000 to $1.9 million.
That high end could force even a long-standing, successful establishment to permanently close its doors.
Thirty years ago, there were perhaps two claims a year per insurance policy covering a restaurant business. But now, there are four, five or six. When that increase is multiplied by 10,000 policies, claims costs escalate — regardless of whether there’s a payout.
Only about one in five claims results in some type of final payout, but insurers must investigate all claims, which can balloon expenses. Moreover, the cost of conducting an investigation, with cameras and documentation advances, can increase as well.
Agents who want to help their restaurant and entertainment clients and prospects should take a proactive approach by providing advice and support to help avoid claims and control insurance costs.
Establish and follow written protocols
The first thing an insurer often considers before issuing a policy is how long a restaurant has been operating. It can be the best indication of whether the establishment has been managed well. An experienced owner likely has safety procedures in place already — i.e., written protocols on food coming in, food prep, temperature requirements and a documented sanitation program.
These restaurants often follow a detailed checklist built on experience.
For example: When food enters a restaurant to be stored before use, responsible restaurants document use-by dates. However, a 2022 CDC-funded study conducted by the Environmental Health Specialists Network (EHS-Net) found that almost one out of every four restaurants did not label their refrigerated and ready-to-eat foods with dates indicating when the food was no longer safe to eat. The study also found that chain restaurants were more likely to track safety dates than independent establishments were.
Complaint protocol
Advise your restaurant and other food-arena clients to maintain clear guidelines on what to do when a complaint is made. First, clients should respond as soon as possible to any complaint. Listen to the complaint and consider offering relief in terms of a complimentary meal or gift card.
However, it’s generally best not to accept responsibility. Often that initial response will resolve an issue. A failure to respond appropriately can escalate the issue into litigation.
Also, advise clients to report any claim to the insurer as quickly as possible. Sometimes a restaurant owner, wary of tarnishing a hard-earned reputation, will hesitate. That can tie the hands of the insurer and impact the insurer’s ability to investigate the claim.
The insurer’s investigation also can sniff out fraudulent behavior. Has that complainant made claims of food poisoning elsewhere? Several in a short amount of time? Has the restaurant been targeted by a scammer?
With appropriate communication, the insurer can not only help protect a restaurant financially in the event of a claim, but also can protect the restaurant’s reputation from foul play.
Document and review outside food providers and delivery services
Advise food and entertainment clients to build solid relationships with reliable and reputable vendors.
Ghost kitchens have become prominent players in the restaurant industry, especially among startups operating in limited space. A ghost kitchen may provide basic menu items, soups and side dishes to as many as a dozen restaurants. There is a collection of variables in the process of transferring food that can lead to contamination.
Similarly, the wide use of delivery services such as UberEats and DoorDash add risk as well. It’s one reason many upscale restaurants were reluctant to use these services prior to the pandemic. When food is delivered by an outside service, the restaurant loses control of how the food is handled and presented, and time is lost between cooking and consumption.
Advise restaurant clients that their checklist should include vetting ghost kitchens and delivery services. Use the most efficient and responsible vendor and regularly monitor them.
Use social media to your advantage
Restaurants most often use social media to alert patrons to changes, new menus, specials and events.
But social media also can help a restaurant identify flaws in its food preparation, presentation or timeliness. Rarely does a restaurant have perfect reviews; what’s most telling is the restaurant’s response. A negative review provides a restaurant with an opportunity to adjust its operations, if appropriate, as well as to respond to the complainant and reassure other customers and potential customers.
A rapid response on the same forum as the complaint was issued is best. A sensitive and polite response, especially one that offers a gift card or invites the complainant back to the restaurant, can flip a negative into a positive, lessening the potential for the complaint to mushroom into litigation. Doing nothing and allowing a negative post to linger on the site indefinitely, should not be an option.
Use a carrier’s risk control template
Underwriting departments can act as a risk control template for insureds. Many insurers can supply a checklist that can be converted into a written quality control program.
A comprehensive checklist can help food service vendors keep records of what products are coming and when, establish a food stock rotation program, and maintain up-to-date documentation of how certain menu items are handled — cooking temperatures and times, preparation, and proximity to other foods being prepared so as not to cross-contaminate cooked foods with raw foods or allergy-safe foods with allergens.
The checklist can be used to schedule regular equipment cleaning and mock inspections as well as outline a pest-control program.
Most restaurant owners have a working relationship with their local health departments and may have some or all of this in place already. A key for independent agents is to help food service and hospitality clients be vigilant, so if a claim does occur, they have the documentation and procedures in place to argue that the claimant was not made ill at their establishment.
Greg Wetherwax is a casualty consulting underwriter for Westfield, a property and casualty insurance group that underwrites commercial, personal, surety and specialty lines of coverage through a network of more than 1,000 leading independent agents and brokers. He can be reached at gregwetherwax@westfieldgrp.com.
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