To say things have changed over the last year is a bit of an understatement—change has swept through every industry, including insurance. Many food and beverage clients have been asked to do the impossible—and succeeded, continuing to stay afloat in an often ambiguous and shifting environment.
As a business owner, your focus continues to be your business, ensuring its future and minimizing any risks you face. The right insurance coverage is an important piece of the puzzle, making it key to understand how 2020 has impacted the franchise insurance market.
In November, Lockton Companies released its latest Market Update on the changes so far and the road ahead. Before you renew your coverage for another year, take a look at these 7 best practices for navigating the current insurance market.
7 Best Practices for Navigating the Current Insurance Market
1. Invest in Fire Protection for Future Benefits
The cost of the future is often decided by the decisions you make today. That’s true when it comes to the return on investment for fire protection, such as detection and suppression systems. For large properties, there is a compelling case for these investments, with many businesses likely to see a return on their investment in 12 to 24 months. The benefits of fire safety are sustained in any insurance market and may help reduce future volatility.
2. Look for Opportunities to Restructure Coverage
Some changes force us to look at a situation from a different perspective, which can present new opportunities. Insurance underwriters are reducing capacity for overall liability limits, impacting policy limits and umbrella/excess attachment points for quick-serve restaurant clients. But this presents savvy franchise owners with opportunities to reevaluate and restructure their coverage and discover new potential for profitability through smart risk retention decisions.
3. Control for New Supplier and Vendor Risks
With recent impacts distributed unevenly across the food and beverage industry, contractual risk transfer is a bigger issue than ever before. Controlling for shifting supplier and vendor risks can help prevent unintended losses and differentiate your business from the pack. Catastrophe modeling can also help increase awareness and boost resiliency in uncertain times.
4. Match Stock Inventory Values to Policy Sublimits
Product demand and inventory values may rise or fall during difficult times, but your exposure to risk should always be under control. Pay careful attention to your stock inventory and policy sublimits when demand shifts or values fluctuate, validating the accuracy of values with your underwriter. By staying in communication with your broker, you can identify strategies to control your exposure through the ups and downs.
5. Manage the Credit Risk of Large Deductible Programs
A shifting economic environment can create domino effects far from the spotlight. One impact is emerging carrier concerns regarding the credit risk of certain large deductible programs. These programs are a boon to large employers with capacity to shoulder additional risk, but minimizing collateral is key. Addressing these concerns with the carrier can help restaurants manage exposure and produce favorable results.
6. Seek Clarity When Prioritizing Insurance Goals
With so many changing variables, it’s easy to lose clarity about what’s important. Insurers are facing new challenges and difficulties placing coverage as communicable disease exclusions become more common. Understanding your risk appetite for this issue can help you set priorities to meet your goals and objectives. It may mean prioritizing coverage over pricing as marketplace offerings diminish.
7. Evaluate Whether a Captive Solution Makes Sense
In unconventional times, a nontraditional solution may make more sense.
Interest in captives, an insurance option that provides specialized coverage for unusual or hard-to-insure risks, is high right now in the food and beverage sector.
Though it’s not the right solution for everyone, it’s often worth evaluating whether this solution would provide desirable advantages, as established captives can provide increased flexibility, a great benefit during the current market cycle.
The unprecedented year of 2020 has already resulted in changes to how many quick-serve restaurants manage risk. By July, our rolling 12-month benchmarking showed that:
- 14% purchased less total umbrella limit at renewal.
- 22% increased property deductibles on renewal.
- 20% purchased one or more additional policy to replace an expiring limit.
If there’s one thing 2020 has revealed about the food and beverage industry, it’s resilience. Your quick-serve restaurant has weathered many changes and your approach to insurance may need some adjustments at your next renewal.
Use these tips for navigating the current insurance market as a starting point to ensure that you always have the coverage you need and that your insurance strategy meets the goals of your business. As always, your Lockton Affinity insurance representative is here to help you with your insurance questions and needs.