Restaurants and Their Insurance Agents Strive for Stability as Costs Continue to Rise
This year restaurants and bars continue to grapple with many of the same challenges they faced in 2024. The rising cost of labor and food, along with the ongoing struggle to recruit and retain employees, remain among the top concerns for restaurant operators nationwide.
The good news: the restaurant industry is expected to reach new sales heights again in 2025, according to the National Restaurant Association’s 2025 State of the Market report, which projects $1.5 trillion in sales and employment growth of more than 200,000 new jobs.
The positive news doesn’t come without challenges, restaurant insurance specialists told Insurance Journal. Rising expenses again will tighten profits for restaurant and bar operators, which makes the role of their insurance agents and brokers even more critical, they say.
Tighter profit margins in restaurants today are one reason an operator might seek the help of a new insurance partner, John Parkhurst, hospitality practice leader, Trucordia, told Insurance Journal. Today’s market makes it a great time for new growth and opportunity for committed hospitality insurance specialists, he added.
The most pressing issue that restaurants face today is the rising cost of labor. For the average restaurant, in the past four years labor costs have risen 31%, according to the National Restaurant Association (NRA).
“There’s just a lack of people who want to work in the restaurant industry, so that alone drives up your labor costs,” Parkhurst said. “They’re paying dishwashers in the city of Chicago and the suburbs $18 to $20 an hour,” he said. When payroll goes up, so does workers’ compensation costs, he added.
Jon Siglar, executive vice president, carrier relations manager, at ALKEME, which writes mostly high-end chains and national chains in the fast-food, fast-casual, and fine-dining space in California, said it’s a mixed bag for his clientele. Siglar, who grew up in the family restaurant business working almost every position, said some of his clients are doing “amazingly well” today with “sales off the charts,” while others are struggling.
“Where my operators are struggling is in the franchise, fast-food space–those that are now paying $20 minimum wage,” he added. As of April 2024, all “fast food restaurant employees” in California must be paid at least $20 per hour. That wage increase is estimated to have led to 9,600 job losses from September 2023 to September 2024, according to a report by Edgeworth Economics in late November 2024.
The second biggest challenge for restaurants is the rising cost of food, which rose an average of 29% in the past four years, the NRA reported in February. And it’s not just the rising cost of eggs. “Chicken went from $40 a case to $140 a case for chicken wings alone,” Parkhurst noted.
Other expenses for running a restaurant–the building, supplies, credit card processing fees, and insurance–are also going up quickly, the NRA said. Yet, despite the sector’s cost concerns, the market overall is still healthy and growing.
“There’s still more restaurants opening up,” said Dan Beck, vice president at Snapp & Associates, an ALKEME company, which writes restaurants and bars ranging from a single operator taco shop to large fine-dining establishments, primarily in San Diego County, California. “We’re not seeing many closures; it’s just margins are tighter for the operators I speak to.”
“Overall, I think the marketplace has found some stability,” said Kimberly Gore, national hospitality practice leader and chief marketing officer at HUB International.
“If you’re doing what you should and you’re a good risk, then you’re going to see that this year,” she said. “If you’ve had some issues around claims or different things, then working with a strong broker on some of those proactive things that help an underwriter see what’s going to happen is helpful,” she said.
This is where hospitality specialists can help the most, she said. “That’s the reason that you really have to understand what the restaurant’s doing,” she added. “We’re absolutely going to talk about pricing, we’re absolutely going to talk about markets, but what we really try to do is understand what they’re doing.” What’s their one-year, three-year, five-year plan? she asked. “How do we build something out that’s a little more stable than just being in and out of a market rate kind of environment?” And that starts with risk management and training, she added.
Siglar agrees with that approach. “A big part of what Dan and I do at ALKEME is work closely with our insureds to impact their insurance costs–not only just by trying to find the cheapest quote that has the best coverage but also being proactive” in helping to manage the operator’s risk exposure.
For Siglar and Beck, California’s property market and employer’s liability market–specifically wage-and-hour coverage–can be extremely tough. “Wage-and-hour coverage is getting harder to get for our clients,” Siglar said. In general, restaurants are facing increased litigation, he added.
“We’re dealing with increased litigation from attorneys in California on workers’ comp,” he said. “I just had another one of my clients call me yesterday–they rarely have an injury but had to terminate a chef for cause, and within five days they were notified of a cumulative trauma claim, so now they have to deal with that.”
Nuclear verdicts in the United States are breaking records, with 27 court cases each awarding compensation of more than US$100 million during 2023, according to Swiss Re executives. Social inflation in the U.S. rose to 7% in 2023–a 20-year high–a situation that is being driven by litigation costs from mega-jury awards, said Dr. Jerôme Jean Haegeli, group chief economist for Swiss Re, who spoke during a press briefing at last year’s reinsurance Rendez-Vous de Septembre in Monaco.
The U.S. Chamber of Commerce has also reported that the number of verdicts above $100 million reached a record in 2023, up nearly 400% from 2013.
For the restaurant and bar space, nuclear verdicts can occur from a dispute in a restaurant parking lot to a food safety issue as well as exist outside the restaurant industry, a spokesperson for Society Insurance, a mutual insurance company that specializes in the restaurant sector, told Insurance Journal.
Society Insurance warned that certain states are more prone to “outsized” jury verdicts. “Between 2013 and 2022, California, Georgia, Florida, Illinois, New York, and Texas accounted for 61% of such verdicts in the country,” the insurer said.
Liquor liability exposures are generating “nuclear verdict” concerns in some states.
Liquor liability insurance provides protection from litigation involving alcohol incidents. “Laws regarding the selling and consumption of alcohol are not established by the federal government, so agents should know their local liquor laws intimately,” Society Insurance advised.
Local authorities establish and enforce these laws, which means the specific guidelines as to who can sell, purchase, and consume alcohol and under what conditions–as well as the punishments for violation–vary widely across jurisdictions.
“Although all 50 states have a minimum drinking age of 21 and maximum limit for blood alcohol content allowable to operate a vehicle, that’s where the similarities end and differences begin,” Society explained.
“Right now, 42 states and Washington, D.C. have dram laws. The DRAM Shop Act allows third parties or others to recover damages caused by alleged over-service of alcohol.” That means even if a business is not liable in these complicated situations, legal defense costs can add up quickly.
This is a large concern for some restaurants, said David DeLorenzo, CEO and owner of Ambassador Group Insurance and Bar and Restaurant Insurance, based in Phoenix. Casualty lines, specifically liquor liability, have been a pain point for years for restaurant operators in Arizona, he said.
“Property is going to be property; we can always predict,” he said. “But what you cannot predict is the liability, and what could happen and why, and when you will get sued,” added DeLorenzo, who himself has owned and operated more than 13 restaurants throughout his career. “And that, to me, I think is a problem in every market now in Arizona, specifically with liquor liability,” he said.
“You can get sued for serving one drink to somebody that gets in an accident later that night,” DeLorenzo said. “That driver may not have been over the legal limit of intoxication, but the fact that you should have known that they were intoxicated when being served could get you dragged into the lawsuit.”
Carriers have said, “We’re not going to write these sorts of establishments anymore,” he said. “Now they may not write establishments that are open past 10 p.m., or that have a band, or have video games, or are not so heavy in food.” It becomes hard for these type of “fun” establishments to get any “let’s just say affordable coverage” to cover everything that they need, DeLorenzo said. “And if they do get coverage, they need to look out for new exclusions.”
For example, DeLorenzo discussed a client he’s insured for 20 years that is located near a college. “They’ve had a couple of million-dollar [claims] over the past three to four years,” he said. “I’ll be able to find them something, but something is not necessarily good enough anymore, he added. “The best quote I have is a sublimit of $100,000.” The carriers are not going to take a chance on another million-dollar claim, he said, “even though they’ve stated that they’ve done more training, and they’ve put all these things in place to mitigate that [exposure].”
It’s stressful to explain the market every few days to his long-term clients, and now friends, he said.
Liquor is always a critical discussion with underwriters, HUB’s Gore said. That’s why it’s important to have more detailed conversations with restaurants on their exposures to fully understand the risk.
“Maybe the underwriting guideline says that alcohol receipts have to be less than 40% of their food. Well, if you’re in a very high-end fine-
dining restaurant, your alcoholic beverage could be more than an appetizer. It could be more than some of the small end meals,” she said. “So, when you look at a percentage basis, then you also have to look at what is the cost of an average meal.” And be able to explain that to the underwriter.
The same is true for the low-alcohol drinks or no-alcohol cocktails, which are growing in popularity, she said. Those beverages present a lower exposure, so knowing how all that runs through the point-of-sale system is important, she added.
“Everything is about data, and that is going to help a client when they’re in the insurance market,” Gore said.
Parkhurst said his background in hospitality has helped him with clients many times over the years.
“I know when to call them, when not to call them. I know their pain points and pay attention when things change–like the minimum wage goes up, or when food prices go up, that sort of thing,” he said.
“Understanding something as simple as their hoods and ducts and safety things in the restaurant makes it easier to talk their language,” he said.
Parkhurst is not alone in that regard. Many specialty brokers have been working in this sector for decades, both inside brick-and-mortar restaurants and in the restaurant insurance industry. Experience and market knowledge matter more today than ever as restaurants struggle with rising costs of operating their business.
“Restaurants are at the point now where they’re probably pretty maxed out on pricing, so they have to try to find other ways to thrive–either by creating another revenue stream or by lowering their costs as much as possible,” Parkhurst said. That’s where the help of a knowledgeable broker can be beneficial.