In the last few weeks we’ve told the story of Rustic Kitchen, a restaurant on the west side of Los Angeles that burned in a fire and how insurance kept him in business. In a later post, we walked through types of insurers. Now let’s hear from an insurance agent on small-business best practices.
Before he opened Rustic Kitchen, owner John Fanaris turned to a local independent agency called Grosslight Insurance in Los Angeles. It has 75 employees and has been in business for decades. It does virtually no advertising, has a minimal social media presence, and depends on referrals. Fanaris didn’t pay much attention to who was his insurance carrier; his relationship was with the agent, Steven Schiewe, the son-in-law of the 93-year-old Grosslight agency owner. Fanaris relied on the agent to advise him on what his start-from-scratch restaurant needed and what carrier to go with.
Control Your Exposure
“I work with about five carriers I go to for restaurant policies,” Schiewe says. “Some insurance companies don’t like to write the restaurant business.” Among other reasons, “they have a lot of fires.”
“It’s always a question of risk exposure,” Schiewe says. He suggested to Fanaris a “Business Interruption Policy” (BOP) that covered ongoing expenses, lost income, and payroll while the restaurant was closed for repair. All 22 staff members were paid every two weeks during closure.
“Of course there are limits to how long [the insurance company will] pay. It depends on what you buy, but they’ll be paid for the four months the place is closed,” he says.
Find Benefits That Fit
After the fire, Fanaris confessed he was surprised at some of the benefits that came with the package.
His BOP included a policy that covers loss of “personal” property like the food and wine inventory, and equipment like the stoves and refrigeration. Another package covered the “tenant improvements” he made before he moved in. All in, the Fanaris’ BOP premium was $750 a month. It remains to be seen if the monthly premium will go up, but Fanaris now says he wished he had bought more coverage in the beginning.
Making the right choices does sound a bit daunting, but the fact is the first-time buyer of a BOP doesn’t have to know all the options or depend solely on an agent. Proposed plans come with basic coverage spelled out and can be tailored to the kind of business in question. There’s also a variety of other options that may or may not be necessary like Employment Practices Liability (EPL) insurance, covering employers against discrimination suits, wrongful termination, harassment claims, and so on. If you run a business with high employee turnover, EPL might be important. But it gets down to premiums.
“I had a client last week whose annual premium for his suggested package came in at $15,000. He said he couldn’t afford that, and asked what could I do? We cut out it down to five thousand a year,” Schiewe says.
Of course, the lower premium means less coverage, fewer options. But in this case the client had the agent to help prioritize, and determining risk is not all guesswork. There are actuarial tables on everything; for example, odds can be figured on the chances of a fire in a restaurant. Between 2011 and 2013 there were 5,600 restaurant fires a year, amounting to about 6 percent of all non-residential building fires reported.
“Our purpose is for the client to know what is and what is not covered,” Schiewe says. Then it becomes a question of money, how much protection you need and can afford.
As we said before, where you buy your insurance, and from whom, gets down to choosing between online shopping, a direct carrier, or an independent insurance agency. It would probably be a good idea for the small-business owner to investigate all three choices before making a decision.
As for Rustic Kitchen, it’s back up and running, serving meals, hosting wine dinners, and catering events. The fire paused the business, but good planning hastened its rebirth.