Fire. Equipment breakdown. Employee injury. Assault and battery. The day-to-day risks and threats restaurant small business owners face can feel never-ending.
NEXT analyzed anonymized claims data to better understand the biggest risks and concerns of business owners, including tens of thousands of restaurants and other food service entrepreneurs. Read on for the most common and costly risks that restaurant owners face and how to protect your business.
And for more restaurant insights into revenue, payroll, and employee headcount, check out this recent report: How can restaurant owners manage recent revenue and payroll trends? Insights from NEXT data.
What risks do you need to be aware of as a restaurant owner?
Using NEXT data from claims related to common types of business insurance (general liability, commercial property, and workers' compensation), NEXT identified the most frequent causes of claims.
Knowing this information can enable you to identify your biggest risks as a restaurant owner and take steps to avoid them. From 2021 to 2024, the most frequent claims for restaurants are:
About 45% of the most common claims fall under commercial property insurance, but it's good for restaurant owners to cover all of their bases when it comes to coverage.
One option to consider is a business owner's policy, or BOP insurance, which combines commercial property coverage with general liability insurance into one package that is usually less expensive than buying the coverage separately.
Here are the four most common claims and how to reduce your risk in these specific areas.
1. Equipment breakdown
Claims related to equipment breakdown can be a result of equipment failure, lack of regular maintenance, and human error.
With such a wide scope of causes, it makes sense that equipment breakdown is such a common claim. Unfortunately these sudden and accidental malfunctions to business property and equipment can happen more often than expected.
Not only does equipment need to be repaired or replaced, but equipment breakdown can also lead to loss of income and inventory.
Fortunately, there are some steps you can take to reduce your risk in this area:
2. Employee injury
The next most common claim is employee injury. Private industry employers reported 2.8 million nonfatal workplace injuries and illnesses in 2022, according to the Bureau of Labor Statistics.
Employee interactions with hot food, open flames, wet surfaces, and sharp knives are nearly constant with back-of-house staff at many restaurants.
However, there are steps to reduce the risk of employee injury:
Make sure to provide the right workers' compensation insurance in case an incident happens (this is required by law in many states if you have employees) and familiarize yourself with the claims process.
3. Customer slip and fall
In addition to being one of the most common claims, customer slip and fall injuries are also one of the most costly claims (see the next section on the most expensive claims).
If a customer slips on a wet mat and breaks their arm, this can lead to medical expenses and legal costs that could impact a business' bottom line.
Fortunately, there are some best practices to help reduce the chance of these types of accidents:
Consider general liability insurance, which can offer financial protection if a slip-and-fall accident happens.
4. Theft
Stolen inventory, equipment, and property. Shattered windows, busted doors, and broken locks. When a criminal steals from your restaurant, you take a hit financially but also emotionally.
To avoid the financial burden and stress, here are some practical steps to prevent theft claims:
Knowing the biggest threats to your restaurant—seasonally and geographically—can help owners better navigate these risks and create a more resilient business.
Depending on the state where you do business, there is a wide range of most frequent claims.
For example, the top claim for Pennsylvania is equipment breakdown, for Florida it's employee injury, and for California it's vandalism. In both New Jersey and Tennessee, the top claim is for fire. Mississippi's top claim is for wind, excluding hurricanes. In Michigan, it's spoilage claims. And in Virginia, it's power outages.
NEXT data also shows seasonal trends for property-related claims:
Though these trends are seasonal, many restaurant owners still find themselves unprepared year after year.
According to a NEXT survey of restaurant owners, 48% reported winter weather-related damage, and yet over half of respondents admitted to not feeling adequately insured.
Tips to reduce seasonal risks:
Some individual claims are more costly than others, regardless of frequency.
According to NEXT data from 2021 to June 2024, restaurants with a business insurance claim had an average total loss of around $9,000. Fine dining restaurants take the biggest loss per business, with average claims nearly double that of all restaurants.
Without the right business insurance, paying out of pocket could put a small restaurant out of business. That's why it's so important to have coverage, even for less obvious risks.
The top four most expensive restaurant claims from 2021 to 2024, according to NEXT data, are fire, slip and fall, assault and battery, and water damage.
Fortunately, there are ways to mitigate the risk of these expensive claims. Here are some tips for reducing risk in these specific areas.
Fire
While fire comes in at the number seven spot on the list of most common restaurant claims, it ranks as one of the most costly business insurance claims.
Fortunately, there are a lot of proactive steps to reduce the risk of fire at your restaurant:
Assault and battery
Assault and battery claims are related to threats of harm or the actual physical act of harming someone. Sounds scary—and, as a restaurant owner responsible for the safety of employees, customers and property, it can be.
But there are steps to mitigate the risk of facing an assault or battery incident in your place of business:
The good news? Many costly claims can be prevented. With a little planning, preparation, and a proactive approach, you can protect your businesses, employees, and customers.
The bad news? Mishaps do happen, and sometimes an insurance claim is unavoidable. It's important for restaurant owners to be prepared.
Consider creating a risk management plan and buying a tailored business insurance package for your potential risk exposure.
"Filing an insurance claim can be daunting, but there are simple steps business owners can take to resolve the issue quickly," says Rhodes.
Tips for a smooth claims process:
With the right understanding of your biggest threats and the right coverage, customized for your business, you'll be better able to withstand the ups and downs of restaurant ownership.
This report contains anonymized data from more than 30,000 small businesses that purchased insurance from NEXT. Restaurants are defined as one of three types: quick service, casual dining and fine dining.
All insurance claims research is from NEXT's claims data, January 2021 to July 2024.
This story was produced by NEXT and reviewed and distributed by Stacker Media.