Restaurants Rebound: Insurance Market Heats Up

It is no secret that the restaurant industry has been in a slump. As families have cut back on eating out, restaurants have suffered three straight years of a decline in business: -.2 percent in 2010, -2.8 percent in 2009 and -.9 percent in 2008.

However, things are looking up. Business is beginning to improve, according to the 2011 Restaurant Industry Forecast from the National Restaurant Association (NRA). Total restaurant sales are expected to grow 1.1 percent in 2011 and an improving economy should mean restaurants will open more locations and hire more employees this year.

The forecast gives hope to not only restaurant owners but also to the insurers and insurance agents writing this class.

Insurers, including Chartis and Westfield, are already seeing a change for the better.

“There was an impact to business across all industries and restaurants were hit harder than most because folks didn’t have as much discretionary income,” said Alan Belthoff, executive vice president and chief operating officer of Chartis’ Growth Enterprises Division. “We are now starting to see a stabilizing with that and starting to see things improve.”

“For the past three years, restaurant sales declined and it is anticipated this will be the first year of an upturn,” said Ruth Knopf, business sector manager for Westfield Insurance.

From fine dining to casual restaurants to chains, every segment has been hurt by the recession but each one of these has started to improve already, say underwriters.

With more than 906,000 restaurants in the U.S., there is plenty of opportunity for agents and brokers in this segment — a fact that isn’t lost on the industry, judging by the considerable competition in the class. A search using the term “restaurants” on MyNewMarkets.com resulted in more than 100 different offerings.

“It is a healthy marketplace with insurance carriers so there are a lot of us out there,” says Belthoff. “It is a sector a lot of us write business in.”

Like most small businesses, restaurants are adopting new technologies and, in the process, exposing themselves to additional risk. More than eight out of 10 restaurant operators say social media will become a “more important marketing tool” for them in the future, according to the NRA forecast. The forecast also says that more than half say they will likely incorporate social media and review sites into their marketing mix in the next two years.

“Social media is taking foothold over small business America and restaurants are embracing it just like any other small business entity,” said Belthoff.

“Social medial has been identified as an important trend for restaurants,” said Knopf. “If they don’t think it makes a difference, someone else will and that is who the [customer] will think of. The ones who put themselves in front of the customer’s face will get the business.”

Restaurants’ use of technology doesn’t end with social media. More restaurants are offering online ordering using credit cards. Also, they are asking customers to sign-up on their Web sites with their e-mail addresses so they can send coupons, event information and other offers.

Agents and brokers should become familiar with new technologies and how restaurants are using them — and the coverage and risk management options available — if they want to be able to properly advise them.

“The exposures are more dynamic than they were five years ago,” said Belthoff. “The risks that restaurants face today are changing compared with what they faced even 24 to 48 months ago.”

Belthoff said Chartis wants brokers who are dynamic in their thinking when it comes to technology, agents who are willing to go before trade groups and take other steps to learn what help restaurants need. “We look at the ability of our broker partners to be up-to-speed to help insureds mitigate risks,” he says.

Chartis has been bullish on restaurant business. Recently, the carrier enhanced its coverage for restaurants with under $25 million in annual sales. The company can also provide corporate identity protector coverage for transactions taking place online.

“We are embracing this because we see it as tremendous opportunity to grow business and increase partners,” said Belthoff.