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Bracing for Impact: How Extreme Weather Threatens Small Restaurants and What Owners Can Do

3 Mins read

Extreme weather poses a significant risk to small business restaurants, potentially leading to costly damages and even long-term closures. With the increasing frequency of extreme weather events, such as tornadoes, snowstorms and flooding, it’s crucial for restaurant owners to understand the risks and take proactive measures to protect their businesses all year long.

Restaurants face notoriously tight operating conditions and are susceptible to a range of risk exposures, including customer and workplace injuries, skyrocketing food prices, labor shortages, accidents related to intoxication, among others. As these risks are inherent in the restaurant industry, when compounded with increasingly frequent extreme weather events, these conditions pose a significant risk of damage to a business’s roof, interior and plumbing, which are time-consuming, costly to fix and can even lead to long term closures. In an effort to further understand the real world impact extreme weather was having on this space, NEXT recently conducted a survey of 1,000 small business restaurant owners looking at the impacts of this winter’s extreme weather on their business.

So, what challenges were uncovered, and what does this mean for year round operations? In this byline, we’ll discuss what these business owners can do to be more prepared and how the insurance industry can adapt to better serve these customers.

What are the challenges?

From hiring new workers, offering food delivery, adding alcohol to menus, etc., restaurants are constantly reinventing operations to better meet the needs of customers and ensure they remain competitive. Furthermore, extreme weather events like we’ve seen in recent years have added an entirely new slate of challenges for restaurant owners. Infrastructure damage or a resulting incident (e.g., a customer or employee slips from flooding) can be detrimental to the business if they are underinsured. Having proper and adequate coverage is critical for all small businesses, but especially those in the restaurant space.

In NEXT’s survey, a notable 48% of restaurant owners reported experiencing weather-related damage to their small businesses from November 2023 to the first week of February 2024. This data underscores the real impact changing weather occurrences can have on the operations and financial stability of restaurants.

When asked if they felt adequately insured for weather-related damages such as snow damage, water damage, fallen trees, flooding and more, 34% said that they did not feel prepared and 24% that felt somewhat prepared. A significant number (26%) of survey respondents were uncertain about whether their business insurance even covered extreme weather events at all. This lack of awareness suggests a potential gap in insurance coverage, and in understanding the specific coverage and limitations of their policies.

Additionally, a notable 29% of respondents said they do not have business insurance. Without business insurance to help cover costs, restaurant owners would have to swallow out-of-pocket weather-related damages themselves. Insurers can help protect their customers with risk mitigation practices by providing educational blogs, newsletters and more, offering valuable tips that may not always be at the forefront of customers’ minds..

Get prepared.

Moving forward, it’s crucial for restaurant owners to prepare for extreme weather before it hits. Investing in both interior and exterior preventative measures goes a long way toward bracing for seasonal weather and reducing weather-related damages. It doesn’t matter whether you own or rent your building; these preventive measures are crucial for everyone.

These measures include, but are not limited to:

  • Roof inspection and repair to prevent leaks
  • Clearing gutters and downspouts to ensure proper drainage
  • Regular removal of snow and ice
  • Insulating pipes and water lines to prevent freezing and bursts
  • Installing leak detection systems
  • Sealing drafts and air leaks
  • Regular maintenance of heating systems to ensure function during the winter season

It’s also critical that restaurant owners know their state requirements and continuously review their insurance policies as their businesses grow and operations change or fluctuate due to seasonality. This will help identify any gaps in coverage and allow owners to make adjustments to avoid being underinsured or paying for unnecessary coverage.

Finally, business owners should not be afraid to explore additional measures to mitigate risks. This could take many forms, including adding endorsements to insurance, implementing risk management strategies and conducting regular risk assessments. They can also shift risk by signing indemnification agreements with vendors or outsourcing high-risk tasks to specialized organizations.

How can insurers help?

As for what the insurance industry can do to help these important small businesses, tailored coverage should remain a priority because no two restaurants are alike. Factors like cuisine and cooking methods, liquor service, seating capacity, locations and building characteristics, and additional services like take out and delivery can impact risk exposures and coverage requirements. This is where technology and enhanced underwriting comes into play. By leveraging data analysis and AI to power digital underwriting capabilities, insurers can better assess risk and provide uniquely tailored insurance coverage that fits each business owner’s needs.

Stay informed, stay protected.

It’s no secret that entering the restaurant arena is notoriously challenging, with roughly 60 percent of new restaurants failing within the first year and nearly 80 percent closing within five years. In a competitive industry, any unforeseen expenses or closures may be fatal. By staying informed and adequately protected, restaurant owners can navigate the uncertainties of weather-related damages and focus on running successful and resilient businesses.

Tim McDermott, Director, P&C Insurance Product Management at NEXT Insurance

Restaurant stock image by Tupungato/Shutterstock

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