Top Five Mistakes Some Restaurant Owners Make Purchasing Insurance
The top five mistakes some restaurant owners make when purchasing insurance:
· Not reading your insurance policies.
· Assuming your agent or broker has read the policy.
· Believing Insurance is a commodity like sugar or flour
· Purchasing insurance from a relative, friend, or frequent customer of the restaurant
· Not managing risk on an ongoing basis
Mistake One: Not reading your insurance policies
Insurance policies are typically contracts of adhesion
which means they are contracts that are already drafted by the insurance company and the purchaser has little opportunity to alter the terms. You are for the most part purchasing a product off the shelf so to speak. Now if you really think about this, what would you do if you were the insurance company? You must promise to provide some valuable coverage but at the same time you do not want to promise too much. You are going to draft a contract that will be attractive to the industry which you are targeting and at the same time limit your exposure. This is not to suggest that insurance companies are in any way deceitful in their practices. The majority of insurance companies are truly committed to their policy holders and keeping their promise to pay. It's just that their idea of what they should provide and your idea of what you should receive may ultimately be very different.
What usually happens when a claim occurs that is not clearly insured by the policy is the insurance company and the insured develop very different ideas about what the language in the policy is actually promising to provide.
The body of case law surrounding disputes involving insured's, third parties, and insurance companies is one of the largest bodies of case law in existence.
Mistake Two: Assuming your agent or broker has read the policy.
Many insurance agents make the mistake of assuming
that because the product is designed for a specific class of business its customer will be or should be satisfied with the results if there is a claim. They assume that the product they are selling has been designed with the restaurant owner in mind and is adequate to satisfy their clients needs. Nothing could be further from the truth. Every company that offers a specialized endorsement for the restaurant industry has a different idea of what should be provided and consequently a different product.
Reading and understanding an insurance policy is a time consuming tedious endeavor. Many agents simply do not take the time to read the policy given the competitive nature of the insurance business, after all the majority of insured's are not looking at policy terms they are looking at policy premiums. Consequently most agents focus the majority of their time trying to reduce policy premiums. This process works rather well and everyone is happy until there is a coverage dispute. You think your agent is doing a great job because he saved you money. Once you have a coverage dispute the premium you paid and the money you saved can rapidly become meaningless.
Mistake Three: Believing Insurance is a commodity like sugar or flour
The nucleus of any insurance program begins with
basic policy forms to insure your property, loss of income, third party liability and your employees. The majority of insurance companies are ISO (Insurance Service Offices) based and use standardized forms to provide these coverage's. ISO has also developed many endorsements to allow for the modification of these coverage forms, either to add additional coverage a particular insured needs or to restrict coverage that is unfavorable to the insurance company's ability to absorb the risk.
This is the part that is somewhat easy to analyze and at this level insurance is essentially a commodity like sugar or flour. It only makes sense to purchase the product from the lowest bidder given they are of equal or sufficient financial strength to keep their promise to pay. The problem is the basic forms of insurance are not adequate to protect a restaurant from the myriad of events that can emanate from your daily operations and threaten the life of your assets. There are many risks that many restaurant owners cannot simply afford to take themselves.
Insurance companies know this and like any good business they are there to fill the need. To fill these needs they have developed their own endorsements specifically for the restaurant industry. This is where the need to understand what you have purchased is paramount. Once you have a loss you cannot go back and renegotiate the terms. Insurance policies are interpreted based on the plain and everyday meaning of the language in the policies. Once a loss occurs the courts will not allow the reconstruction of an insurance contract. The terms are essentialy set in stone.
Mistake Four: Purchasing insurance from a relative, friend, or frequent customer of the restaurant
The number four mistake is purchasing your insurance from a relative, friend, or customer of the restaurant
simply because they are a relative, friend, or customer of the restaurant. I cannot tell you how many times I have been told by a restaurant owner that they are not interested in getting a second opinion about their insurance program because it is handled by a relative, friend, or loyal customer. I always think to myself: would your criteria for open heart surgery be based on having your relative, friend, or a doctor who frequented your establishment perform the operation simply because of the relationship? I don't think so. No you would research the most qualified individual to trust with your life. The same should hold true for protecting the life of your assets. It is very possible that your relative, friend, or customer may be highly qualified to design and manage your insurance program. Ask yourself today what criteria you used to make your selection and if it is simply because you like them or feel obligated to do business with them hopefully you have not made mistake number one, not reading your policy.
Mistake Five: Not managing risk on an ongoing basis