Every business has unique features and therefore every business needs their insurance cover to be flexible and unique to match. Rarely does a “one size fits all” approach provide a perfect fit. Our advisers not only understand insurance but they also understand how the hospitality sector works. Whether you own a restaurant, café or catering van find out what business insurance you need to look into today.
There are two types of insurance for any business:
Compulsory Business Insurance
There are certain risks that you must insure against by law such as:
- Employers’ liability insurance: This covers claims for injury or illness incurred by employees in the course of their work. If you can hire or fire or direct the labour of someone, they are an employee. This is regardless of their being under contract – full-time, part-time or zero hours – a volunteer, an apprentice, a work experience student. Failure to have employers’ liability insurance in place is punishable by a fine of up to £2,500 per day. The limit of indemnity is a minimum of £10,000,000 regardless of the type of work undertaken. There is sometimes confusion because the Employers’ Liability certificate – a document which must be displayed where employees can see it – shows a minimum of £5,000,000. This is because cover is limited to £5,000,000 where terrorism is a factor.
- Engineering inspection: certain items of lifting or boiler plant must be inspected by law at pre-determined intervals. Some larger establishments use autoclaves for cleaning metal items and these utilise high pressure steam. This is not insurance as such but an inspection contract although elements of insurance, such as material damage and explosion can be added. Unlike insurance, inspection contracts are subject to VAT at the prevailing rate. Any insurance aspect is subject to IPT in the normal way.
- Motor insurance third party liability: as with any vehicle used on the public highway, motor insurance is required for business vehicles. It is essential to hold the correct insurance for delivery vehicles and, where employees use their own vehicles, you must ensure that they hold the correct type of insurance. The police are very aware that many delivery vehicles are operated on basic insurance which is insufficient.
Optional Business Insurance
This covers everything else.
Now it’s a matter of what is important and for what you are prepared to pay. Again, every business is unique and certain elements have much more importance to the business than others. As with any individual, different businesses have different attitudes to risk. Some prefer to insure for all eventualities; some are happy to accept some risks as being a part of business life:
- Buildings Insurance: if you own the building(s) that you trade from, whether they be offices, workshops, factories, stores etc. then you should have buildings insurance. The sum to insure for should be the cost of reinstating the business in the event of a serious event such as a fire. It is important to include an amount to cover removal of debris and any professional or planning fees required. The end figure may be different to the market value. If you do not own the buildings, make sure that your property owner has adequate insurance and that they have told their insurer what you are doing in their property. In particular, ensure that they are aware of any deep-fat fryers. For some reason, the association of heat with flammable liquid makes insurance companies nervous. Many cafes and coffee shops operate within other businesses such as garden centres, antiques centres, hospitals, charity and retail shops so it is vital to ensure that each business knows what the other is doing.
- Tenants’ improvements: the property owner is only responsible for insuring what belongs to them so if you have made any improvements such as fitted kitchen units, fixed shelving, partitions or anything else fixed to the structure but which belongs to you and not the property owner, these need to be insured by you under this heading.
- Contents Insurance: that is your tables, chairs, machinery, table linen, cutlery, glassware, carpets and curtains. The usual term used by insurers is “machinery, plant and all other contents.” The sum insured should be the amount required to buy everything as new.
- Stock: this can be items you have bought in to sell on or those that you have created from raw materials. The sum insured should be the amount that it cost you to obtain those items or the raw materials, including any transportation costs. The difference between this and the price you would sell for is covered by the business interruption cover (see below).
A feature of the physical aspect of catering insurance is the need to be aware of and to comply with specific requirements in respect of kitchen upkeep. One which has been an issue for several restaurants is cleaning of ducts where frying takes place. It is not enough to just do the cleaning or have it done but a record must be kept of the dates and extent of work. This should be kept either off the premises or in a fireproof safe or cabinet. A written record is of little use if it’s a pile of ash. This could be the difference between a claim being met or not.
- Public liability insurance (see above): The limit of indemnity is whatever you need. Most insurers now offer a minimum of £2,000,000 although £5,000,000 is common. Being involved with an increasingly litigious public, we suggest that £5,000,000 is more appropriate. Again, higher limits are available according to need. Some policies are limited to accidents happening on the business premises so companies that do “work away,” for example, where you deliver to customers, should ensure that their policy covers that. Also, any use of security staff must be declared to the insurer. They will also wish to know about additional services such as live entertainment, children’s’ play areas.
- Products liability insurance: This is the big one! This normally comes with public liability at the same indemnity limit – although there is a difference. Public liability limits cover each claim without a limit to the total during the insurance year. Products liability covers each claim and “in the aggregate,” so if the limit is £2,000,000 that is the most that can be paid out for events in any one insurance year, regardless of the number of incidents. Products liability can be important even if you do not manufacture or alter the products, such as canned or bottled drinks. As the retailer, you are legally the first port of call for any claim. Although, claims may be eventually passed on to manufacturers or suppliers, this can take a long time with no certainty that their insurer will pick up the tab. Many insurers include a clause which automatically cancels this cover in the event of the Food Standards Agency rating for your establishment dropping below 3.
- Money: cash is becoming less used now but is still an important aspect of many businesses. Typically cover is for on the premises during businesses hours, in transit to bank, in bank night safe at relatively low sums insured and in safe or strongroom for higher sums insured. There is also generally a fixed benefit for injury to staff during robbery.
Business interruption Insurance
Also known as “loss of profits”: this is a major concern and one sadly overlooked by many businesses. Not having adequate cover has seen many businesses fail following an incident. If something happens at your premises such as a fire or flood, this is likely to affect your income and outgoings for some time. I mentioned above the valuation of stock for insurance purposes as being as cost price to you. Business interruption cover picks up the difference between that and the profit you would have made at the price you would have sold on. Other areas you need to consider are continuing standing charges for utilities, rent/ground rent, business rates. Do you want to pay staff to retain their services or let them go? All these are areas where you need to seek advice from your accountant and your insurance adviser so that you can formulate a business continuity plan. Post-Brexit, one of the issues that may cause a business to have problems getting back to work is the supply chain for machinery and plant. Many catering businesses, for example, use equipment sourced from the EU. Covid-19 and the subsequent loss of business due to lockdowns has been a very prominent issue, especially in the hospitality sector where most businesses suffered from some adversity. Most notifiable disease extensions cover specific diseases that will be named in the policy. These are diseases that are well known and understood. If the policy does not allow for all human infectious diseases, then cover is unlikely to apply. Some notifiable disease extensions are more general and do not specify certain diseases. In these cases, business interruption cover for COVID-19 may apply if COVID-19 is present at the premises and all policy conditions are met. This does mean that a general lockdown is unlikely to be covered.
- Legal expenses: although many law firms offer “no win, no fee” options, if they do win, the fee will be substantial and is actually your money. Adding legal expenses cover to your policy is inexpensive. Cover includes such matters as disputes with suppliers and tradesmen, employment difficulties, property disputes – vital if a property owner is involved – and so on.
- Loss of licence: nightclubs, pubs, licenced restaurants need to consider this. It covers – as it says – loss of licence such as may occur if there are complaints from neighbours or changes in local byelaws. It will not cover loss of licence caused by you doing something illegal or in breach of licence terms.
- Goods in transit: finished product being sent out and materials coming in can be lost or damaged in your own vehicles, those of suppliers and couriers so this can be a valuable area of cover. Where goods are sent to or sourced from overseas, marine cargo cover may be more appropriate.
How much will all this cost?
Insurance is about “risk transfer.” Everything in life is a risk – getting out of bed, crossing the road, driving to work. By paying an insurer for the right cover, you transfer the risk to them, leaving you to invest in your business without the need to build up reserves to pay for sudden and unforeseen issues.
As with just about all insurance, location plays a big part as does the type of property. Many cafes and restaurants opt for cosy thatched properties, which have their own risks. Late opening hours or a high cash turnover are also factors. Referring to the first paragraph, there is no simple answer to this question. Every catering business is unique. There are a number of payment options available to spread the cost.
Many years ago, the distinct types of policy were separate so that a company might have a fire policy, a wet perils (storm, flood) policy, a dry perils policy (theft, vandalism, impact), a business interruption policy and separate public and employers’ liability policies. Now, it is more common to have a business combined or package policy covering all or most of the above.
Please talk to one of our advisers, who will guide you through what is available and give you the information that you need to make a decision. Call 01442 242400 or make contact here today.