We've been on the downward side of the commercial insurance curve for the past year and a half. In 2006, profits were at all-time high levels for the insurance industry. These record profits triggered a flood of capital into the insurance marketplace. Additionally, many new insurance companies sprouted and began operations; thus, competition and supply increased. As we all learned in know, when demand stays the same but supply increases, prices drop. The forecast for the immediate future is a continuation of the decline in insurance pricing for Liability, Property, Auto, and Workers Compensation. Over the past year and a half alone, restaurant owners have seen their insurance rates decrease by 15-40%.

Is there an end in sight? There is-once the carriers begin paying out more in claims and operating costs than what they are making in premium dollars. A hardening of this cyclical market will commence once insurance companies start seeing red in their bottom line again. Damaging hurricane seasons that produce large property losses or catastrophic events like 9/11 can certainly expedite the process. More litigation or especially large lawsuits pertaining to Workers Compensation, Food-borne Illnesses, or Liquor Liability can also cause increased prices for the Restaurant Industry. Additionally, there is always the next "claim du jour" that we have not thought about yet. For example, prices could be affected by class actions suits related to FACTS or other privacy suits cased by leaving credit card information on sales receipts.

Only one thing is certain: the hard market will be back. Regardless of whether market rates are increasing or decreasing, focusing on risk management, loss reduction, and paying attention to details can help you cut costs in any market situation. Considering the current state of the overall economy, cutting substantial costs now can help you save a few jobs down the line. Remember, sometimes the best defense is a good offense.

Consider these helpful hints that might help improve your insurance situation:

Location, location, location. Any successful restaurant entrepreneur must have the ability to analyze situations effectively and identify hidden opportunities. Consider the way you have set up your concept as an organization to locate potential savings. Some clients my firm works with lease their stores, and additionally lease their employees from a PEO. Property insurance and Worker's Compensation insurance are built into these costs. As a result, the restaurants utilizing this strategy gain greater levels of control and substantial savings by carving out those coverages and then negotiating from there.

Manage your claims. America may be the land of the frivolous lawsuit; if so, the restaurant industry is undoubtedly the epicenter. Is there anything more frustrating than getting served with a lawsuit and being clueless as to the circumstances underlying the claim? Of course, the lawsuit is usually from some mail-order lawyer who has a really "clever" saying like, "We take names, then kick butt!"

Executing prompt claims reports and tracking incidents are necessary components of solid claims management. You will also reduce claims costs. Properly set up these processes and procedures to protect your organization from potential surprises and minimize claims issues. Without doing so, you can become a target. Also, create special instructions for claims handling that dictate what claims will be paid. This allows you to avoid disrupting ongoing business in the event that a major loss occurs.

Choose the right partner. The commercial insurance industry can be a confusing and misunderstood place, and unfortunately there is plenty of incompetence floating around. Even worse, the brokers' commissions in commercial insurance are typically set up in such a way that you essentially pay the same price for a Filet Mignon as you do for a burger! However, my experience in the industry has taught me that lawyers, restaurant executives, and owners do not have the time to truly how commercial insurance really works.

What you need to do is team up with an insurance broker who has industry expertise, understands the market, and has a track record for consistent success. Do your due diligence and talk to references and restaurants the broker personally services. Keep in mind that you may hear something like, "We handle Brinker," but the actual team doing the work is in another office. Also, remember that your broker does not necessarily need to be local. They do, though, need to be active in the industry to be cognizant of industry-specific issues, be creative, and have some leverage to negotiate the best deal for you. Choosing a great broker can increased the bottom line by $25,000+ per location, contribute solutions across an organization, and enhance a balance sheet on both micro and macro levels.

Finally, when it comes to choosing the right broker, make sure that he or she is backed by a good team. No one person can effectively handle all of your commercial insurance needs. Choose a team that provides great service, handles claims and loss control, and has alternative risk expertise.

Have a renewal strategy. Do not let yourself get caught in the insurance cycle. If you work the cycle, it cannot work you. How can you effectively work the cycle?

• In soft markets, you may be compelled to cancel a current policy to take advantage of lower available rates. This, of course, will depend on how much you have already paid in premiums.

• You may also be able to free up more cash by lowering premiums mid-term, thus allowing you to release significant escrow dollars currently being held. You can, additionally, reduce the length and sting of the next hard market by extending current terms in the soft market.

• Always pay attention to what time of year your current policy is set for renewal. By negotiating rates at the end of a quarter, when insurance companies are seeking premiums to make their numbers, you can negotiate better terms.

• For coastal properties, make sure to renew before the hype of a new hurricane season rolls in.

As a general rule, renew early. You do not want to be held hostage by last-minute quotes. We are all familiar with the unappetizing terms presented in renewal options the day before renewal. You want to be able to have the quote early enough to be reviewed. Make sure that your broker allows this to happen. This way, if the terms are not to your liking, you have the luxury to look elsewhere.

The tips and hints listed above should offer some insight into what can otherwise be a confusing and frustrating endeavor. With that said, realize that there are always significant savings available in every aspect of every restaurant concept in the country. Risk management and insurance just may not be the first place most people look.

Morgan Ryan is a vice president in the Dallas office of McGriff, Seibels & Williams. McGriff is the eighth-largest insurance brokerage in the U.S. Based in Birmingham, Ala., the firm operates 11 offices throughout the nation, including the Dallas office, which focuses on restaurant and real estate business.


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Avoiding the Insurance Whirlpool
For many multifamily companies, many of which are very flat organizations, there is a cyclical effect that often occurs. The company grows, management gets busy, and somewhere along the way things start to slip through the cracks. For a multitude of reasons, multifamily insurance costs can begin to creep upward. These rising costs can obviously have adverse effects. You, as the owner, are forced to take on more of the work; specifically, shopping your insurance more than usual, which takes up your time. (The industry is notorious for bidding out its insurance more than most others.) Business increases, your available time decreases, you manage risk less, costs increase, more shopping occurs, and thus, the cycle continues.

Consider these helpful tips concerning multifamily insurance to break free from this "insurance whirlpool":

Make Wise Choices. The world of commercial insurance agencies can be confusing. Essentially, you pay as much for a bad broker as you will for a good broker. Regardless of if you are paying a commission or a fee, it can come as a shock to many that a Mercedes costs the same as a Pinto. Choosing a full service agent you trust, and who also comes with industry references, can save you time and money. For example, a reputable broker who has a great claims department will negotiate with insurance company adjusters and assist you in preparing proofs of loss, and handle the public adjusters. Any such assistance in getting you the maximum final loss recovery will serve to reduce your overall cost of risk.

In 2004, after Hurricane Ivan ravaged the Southeast, my firm took on an apartment management client. This company came to us after being forced to learn a difficult and expensive lesson. Without adequate claims advocacy it had accepted loss recovery of only $.60 on the dollar.

Additionally, never forget whom your insurance broker works for: You. This is the age of transparency; so do not be shy about asking questions. It never ceases to amaze me when I find out about companies that are paying both a commission and a fee, even though it is unbeknownst to them. My firm discovered two such unscrupulous brokers in 2007 that were taking an "extra" hidden commission. Both were taking in excess of $175,000.

Everything Can Be Negotiated. My firm manages risk for numerous large real estate portfolios. We have seen many companies find themselves in trouble with respect to lender insurance requirements.

In fact, two years ago, we found out about a large multifamily organization that bought $90 million worth of commercial insurance on its properties in Florida. Many deals, such as this one, can be rushed and secretive. In this case, the organization probably overlooked the requisite contract review and due diligence that should accompany any deal. Attempting to collateralize the loan, the foreign lender required the multifamily insurance be written for the full loan amount. Basically, this insured the land as well in the process. The deal ended up being a blockbuster that ultimately became something less sweet than originally anticipated.

Manage Your Time. Many multifamily companies manage between 500-10,000 apartment units and have one- or two-person commercial insurance agencies managing their insurance. Thus, these companies have management executives who spend time each day performing duties that a full-service commercial insurance agency would do much more efficiently and for the same amount they pay their current broker. If this sounds like your situation, have a little fun. Call your current agent and say, "Please begin the cleaning the pool at Holiday Isles and collecting rent checks for me." Your agent will probably reply, "Excuse me? We're an insurance agency." Then you can come back with, "Exactly! So remind me again why I am attempting to get a claim paid and allocating premiums?"

What should your broker be doing for you? Negotiating the best commercial insurance coverage for the best price, handling loss prevention/control, and ensuring effective and efficient claims handling, among other things. It's OK to outgrow an agency. If yours is not doing the work it should be on your behalf, upgrade.

Consolidate, Consolidate, Consolidate. One action that consistently produces decreased insurance costs and better productivity is the consolidation of multifamily insurance policies. There are a myriad ways it helps to lump together all of the policies you are renewing throughout the year. First, and foremost, you will find that you have more free time to spend performing actions that actually make you money.

Second, by consolidating, you will decrease your total premium with increased leverage with the commercial insurance companies. This will cut your premium rate and allow you to avoid some of the frictional cost you would experience with multiple policies. This is imperative when you are in charge of multiple ownership entities. If you believed, based on misinformation from the past, that consolidation is not possible, think again. Consolidation is a terrific option.

At the end of the day, what matters is saving your company some real money. If you find yourself spending more time, and money, dealing with your companies' multifamily insurance - call a professional. And get helped out of the Insurance Whirlpool.

Morgan Ryan is a vice president in the Dallas office of McGriff, Seibels & Williams. McGriff is the eighth-largest insurance brokerage in the U.S. Based in Birmingham, Ala., the firm operates 11 offices throughout the nation, including the Dallas office, which focuses on restaurant and real estate business.



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