The Top Five Mistakes Most Food Service & Hospitality Business Owners Make When Purchasing Insurance

The top five mistakes most business owners make when purchasing insurance:

• Not Reading your insurance policies
• Assuming your agent or broker has read the policy
• The Belief Insurance is a commodity like alcohol, food or sheets.
• Making a purchase of your business insurance from a frequent customer, relative or friend of you or your business.
• Not managing you risk on an ongoing basis.

First Mistake: Not reading your insurance policies

Insurance contracts are unique in that they are unilateral. One side must perform (the insurer) while the other side has the option of performing (insured). Typically insurance policies are contracts of adhesion, which means they are contracts that are already drafted by the insurance company. There is little opportunity for the purchaser to alter the terms. For the most part you are purchasing a product off the shelf so to speak. Now if you 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 will draft a contract that will be attractive to the industry, which you are targeting, and at the same time limit your exposure. I am not suggesting that insurance companies are deceitful in any way in their practices. Most insurance companies have a real commitment to their policyholders and in keeping their promise to pay. Your idea of what you should receive and their idea of what they should provide ultimately may be very different.

Second Mistake: Assuming your agent or broker has read the policy.

A mistake that many insurance agents make is assuming that because the product is designed for a particular type or class of business, the business will or should be satisfied with the results if there is a claim. Many agents or brokers assume that the product that they are selling has been designed with the food service & hospitality business in mind and is adequate to meet the needs of their clients. That manner of thinking usually incorrect. Each company that offers an endorsement specific to the food service & hospitality 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 task. Most agents simply do not take the time to read the policy, given the competitive nature of the insurance business, usually most businesses are not looking at the terms of the policy, they are looking at the policy premiums. The focus of most agents time is spent in the pursuit of lower premiums. This works well and all are content until there is a coverage dispute. The dispute usually comes when there is a claim. You felt your agent did a great job because your premiums were reduced. A coverage dispute will usually happen at the worst possible time, when a claim arises and you find the money you saved on premium can quickly become meaningless.

Third Mistake: The Belief that Insurance is a commodity, like alcohol, food & sheets.

The basic forms to insure your property, loss of business income, third party liability and your employees are the nucleus of any insurance program. The ISO (Insurance Service Offices), which the majority of insurance companies belong, use standardized forms to provide these coverage's. The Insurance Service Office has 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 risk.

This is the part that is somewhat easy and at this level insurance is essentially a commodity like alcohol, food or sheets. 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 ISO basic forms and endorsements of coverage are not always adequate to protect your business from the abyss of occurrences that can emanate from your daily operations and threaten the life of your assets. There are many risks that business owners simply cannot afford to take themselves.

Like any good business insurance companies realize they are there to fill a need. They have developed their own endorsements to fill the needs of the food service and hospitality industry. It is paramount to understand what you have purchased. You cannot go back and renegotiate the terms once a loss occurs. The interpretations of insurance policies are based on the plain and everyday meaning of the language in the policy. The courts will not allow reconstruction of an insurance contract once a loss occurs. The contract is essentially set in concrete.

Fourth Mistake: Making a purchase of your business insurance from a frequent customer, relative or friend of you or your business.

Purchasing your insurance from a relative, friend, or customer of you business simply because the person is relative, friend or customer of the business, is the fourth mistake. I cannot count the number of times I have been told by an owner of a food service or hospitality business 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. Would your criteria for major surgery be based on having your relative, friend or doctor who patronized your business perform the surgery simply on the basis of this relationship? I think not. You would seek out the most qualified individual, to trust your life with. Protecting your assets should take on the same criteria. Your relative friend or valued customer could be that highly qualified person to design and manage your insurance program. What criteria have you used to make this selection? Simply, if it is because, you like them or feel obligated to do business with them hopefully you did not commit the first mistake, not reading your policy.

Fifth Mistake: Not Managing risk on an ongoing basis.

 The purchasing of your policies and filing them away and believing your risk management process is complete, is the fifth mistake. The insurance purchase is somewhat of a paradox: you buy insurance to protect your assets against occurrences you cannot afford to pay for yourself however if you have a serious occurrence your premiums will either go up or you may become so unattractive to an insurance company that you will not be able to obtain or afford the insurance.

What you will ultimately pay for your insurance policy, depends the amount on proactive risk management that is practiced. Safety programs and loss control implementation, is an integral part of managing your risk. This process is an ongoing event and does not happen overnight. The development of a risk management program can be implemented by the proper selection of an insurance agent/broker and insurance company.

To learn more about risk management for your business contact Rodney Nars representing G.A Crandall and Company Inc at http://www.rodney4insurance.com/ to learn more about me and the agency and companies we represent.  Go to http://rodney4insurance.com/Contact-Us.php fill out the contact form and I will get in touch with you to discuss these issues.

About the Author:

Chad Fisher lives in Seattle and is a part time writer, full time husband and father. He owns small businesses that take up much of his time and loves sports in his free time!