Catering for all needs

Catering and hospitality have been popular areas for brokers specialising in SMEs for decades, partly because the trade is healthy, meaning there are always new proprietors looking for insurance. This year has seen restaurants become more prominent in some brokers' books, because the soft market conditions have not affected premiums significantly.

A record-breaking 158 new restaurants opened in London between August 2006 and August 2007, rising from 142 establishments in 2005. Brits are spending more on eating out than ever before and business consultancy Horizons predicted that Christmas 2007 would see the British public spending £3.7bn on eating out. Restaurants are popular with insurers too, as the risks are high enough to generate profitable rates but the chance of an all-out loss is relatively low.

While some brokers are attracted by smaller, independent restaurants where a local broker can use his influence to attract local businesses, others may opt for the sheer volume available from chain eateries. The most competitive premiums are found in the more exclusive, celebrity-filled variety, but a broker must do an enormous amount of groundwork before it can benefit from being part of the magic circle of elite restaurants.

One such broker is Alliance Insurance Management, which became part of Towergate in February 2007. Chief executive John McLaren-Stewart said his clients include renowned celebrity chefs and a well-known, high-end Italian chain. McLaren-Stewart added it has taken a lot of hard work, continual networking and a deep knowledge of the rest of the catering trade to get there.

As with any high-profile client, public perception is important. McLaren-Stewart commented: "Anything that could affect the name of our clients ... could mean that people stop going to the restaurant." A major fire, food poisoning outbreak or any other breach of health and safety could lead to the brand name being tarnished. Brokers offering business interruption policies can be particularly attractive to potential clients, especially if the restaurant needed refurbishment or rebuilding. London-based brokers could even benefit by offering business interruption cover for terrorism.

The mid-range part of the market offers less high profile, though equally profitable, businesses. Premiums start around £2,000 according to Mark Forbes, account director at Stuart Alexander, though the premiums can rise to £50,000 for a country retreat or hotel restaurant. Like McLaren-Stewart, Forbes advocates close contact with the market: "What makes the difference as far as seeing off the competition is concerned is tapping into the sector as a whole. We have a working relationship with the British Hospitality Association and Restaurant Association. Any broker can quote for a restaurant, but to gain a cutting edge they will need to develop a relationship with other areas of the industry."

Breakdown

Mechanical breakdown is one of the overlooked risks associated with restaurants, but brokers in the know have realised the benefits of offering their clients cover for air-conditioning units, extractor fans or ovens. Ian Nichol, underwriting manager for electronics at Allianz Engineering, said: "It isn't merely a case of the customers becoming a bit warm if the air-conditioning unit breaks down; the staff won't be able to work if it's too hot."

Nichol added that the units were often hard to access for repair and, potentially bring lengthy delays to a restaurant's period of closure and therefore making a good business interruption package crucial. When food storage equipment fails a policy such as deterioration of stock cover can also be of great assistance, as it provides remuneration for the value of the stock damaged and the costs of decontamination and disposal.

Fire damage is the most common statement on a claims form. It could cause total loss in the worst cases, though most well-run restaurants have adequate risk management in place to avoid this situation.

Local

Restaurants are not the exclusive territory of the larger firms though, with many appointed representatives and smaller brokers discovering that a local broker is often chosen ahead of the bigger competition for regional eateries.

Aylesbury-based Ten Insurance has found its policy numbers for restaurant insurance rising, resulting in the company taking on appointed representatives with particular expertise in the industry. Elliot Arnold, operations manager at the firm, said that the area was attractive because the restaurateurs' are required to stay on top of health and safety regulations. Chefs often see the business as not only their livelihood but also their passion, and therefore put considerable effort into making establishments as safe as possible.

Arnold said: "Health and safety legislation is horrendous these days: it is fraught with bureaucracy and red tape. To get a food health and safety certificate is one thing, but to maintain it and its standards must be hard, particularly with the number of food allergies around. I think the premiums tend to reflect that extra liability - the cost of risk is far greater than a shop of a similar size."

Buckingham-based Coughlan Insurance is a family-run broker that has found success by offering policies to a number of chain and hotel-based restaurants.

Lee Coughlan, partner and commercial insurance manager at Coughlan Insurance, commented that while he has experienced the threat of increased competition from brokers, underwriting agents and direct insurers, client retention has been strong thanks to his broker's attention to detail. Coughlan Insurance has also been successful through add-ons in directors and officers cover and loss recovery services.

While brokers differ over their preferred way to attract and maintain relationships with restaurants, the increasing number of gastropubs and hotels buying restaurant chains gives brokers the chance to spread their influence across the hospitality industry.

Britons continue to spend a third of their food and drink budgets at catering establishments, restaurants and food outlets. These will continue to boom and provide brokers with the opportunity to grow alongside them.

KEY RISK MANAGEMENT PRACTICES IN YOUR CLIENT'S RESTAURANT

- Concrete floors

- Fire extinguishers and sprinkler systems

- Modern electric wiring

- Allergy information clearly available on foodstuffs

- Strict maintenance routines for extractor fans, waste disposal units and fat depositing machinery

- Clear labelling of steps, doorways and fire exits.