What’s in your policy? Navigating insurance for pizzerias

For many pizzeria operators, insurance can be confusing to navigate and not all policies look alike. But one small kitchen fire, employee injury, natural disaster or delivery accident can can quickly become a financial breaking point without the right coverage.

To ensure the right kind of policy, operators should understand what kind of policy they're buying and what's actually being covered.

"Pizza shops cannot treat insurance like a box to check. One bad kitchen fire or delivery wreck can eat up years of profit faster than a Friday night rush," John Espenschied, owner of Insurance Brokers Group in St. Charles, Missouri, with over 25 years of experience, said in an email interview.

At a minimum, pizzerias need to consider general liability, property, workers' compensation and delivery-related auto liability. (And if that wasn't enough, there's also now cyber insurance, which protects a business financially if it experiences a cyberattack, data breach, ransomware incident or other technology-related security event.)

General liability helps with customer injuries while property coverage protects the building, ovens, coolers and inventory. Workers' comp matters because pizza work has burns, cuts, slips and plenty of lifting. Delivery is its own big issue, Espenschied said.

"If employees use their own cars, the owner should ask about hired and non-owned auto coverage. A driver's personal policy may not cover business delivery use," he added. "Delivery is probably the biggest insurance blind spot for pizza operators. The shop may be small, but once drivers are on the road, the risk gets much bigger.

"For smaller operators, the key is knowing what loss they can survive. They may choose a higher deductible for a small water leak or broken window. But they should not self-insure a major fire, lawsuit, employee injury, or serious auto accident. Those are business ending risks."

For pizzerias that own their delivery vehicles, commercial auto coverage is essential. Operators may also want to consider higher liability limits and an umbrella policy, particularly because a serious accident can result in costs far beyond what a small business owner might anticipate.

And insurance risk isn't the same for every pizzeria, especially for delivery.

A pizzeria in New York City, for example, may contend with heavy traffic, pedestrians, congested streets and potentially higher injury claim costs, Espenschied said. Meanwhile, a pizzeria in a smaller town may face less traffic but have drivers traveling significantly farther, navigating rural roads or dealing with more challenging weather conditions.

"The real issue is how many deliveries are made, how far drivers go, and when they are out driving," he said.

What to buy and who to use

Knowing what to ask for, how coverage applies and what may be missing from a policy are critical for pizzeria operators, said Jeff Kroeger, executive vice president and Division Revenue Leader at World Insurance Associates, in a phone interview.

"The biggest thing is understanding what you're buying and how that coverage is going to respond when there's a claim," he said. "A lot of business owners don't really know what they have or what they're paying for."

That can be particularly challenging for restaurants as there is no single insurance policy that covers every potential exposure. A business owners policy, or BOP, provides a broad foundation of coverage, but it is not all-encompassing.

Kroeger recommends that pizzeria operators work with an independent broker who can evaluate multiple insurance companies and coverage options to ensure the right type of coverage.

Different insurance carriers have different strengths when it comes to specific risks, he said. One may offer better coverage for one exposure, while another may be better suited for a different risk. An experienced broker can compare those options and recommend an approach based on the individual pizzeria rather than simply offering one company's products. And because brokers have access to multiple carriers and coverage options, finding the right one is an important first step.

"Ask people in your field who they would recommend," Kroeger said. "Industry associations can be a good resource, as can referrals from accountants, CPAs and attorneys who work with other business owners. If you're opening a restaurant, you want someone who has expertise in the space. You want someone you trust and can develop a rapport with. At the end of the day, we're in the business of risk management. You should trust your insurance broker at the same level you trust your accountant or lawyer."

If using or looking for a broker, Kroeger advises only calling one or two, as using more can block the market. In other words, operators could hurt their insurance options by asking multiple brokers to shop for the same policy at the same time.

"We don't want to be commoditized at the end of the day. Don't call every broker on the street just to get options," he said.

Once a policy is in place, a good agent should conduct a loss control visit. These visits serve as a safeguard, Kroeger said, and give insurance representatives an opportunity to identify potential hazards that could increase the likelihood of an accident or claim. They may point out issues that need to be corrected or will recommend ways to reduce risk. This includes potential slip-and-fall hazards, improperly installed equipment, or other safety issues that may not be obvious. In some cases, insurers may require certain safeguards or maintenance procedures to remain in place for coverage to apply, Kroeger said.

The goal isn't to find fault, he said. It's to identify problems before they become claims.

Espenschied agrees and recommends that owners walk through their operation with their insurance agent at least once a year. The conversation should go beyond paperwork and premiums and include the hood system, grease-cleaning practices, delivery policies, driver rules, delivery radius and aging equipment.

"It is not glamorous," he says, "but neither is explaining a grease fire to your landlord."