Your restaurant general liability insurance rate is one cost which is factored into your total restaurant insurance premium. Due to the uniqueness of each restaurant an insurance company will assign a classification code, this classification code is used to set what is called the “liability base rate”. In my previous article How Restaurant Insurance Rates are Determined you learned how the base rate begins as the starting point for how your restaurant insurance rate is developed.
A restaurant that has a retail bakery on premises presents a different risk than a restaurant that does not have a bakery but provides catering. A restaurant that generates more than 30% of its sales from liquor will have a different liability classification code than one that does not generate as much from liquor receipts. The more areas where you generate money from your restaurant the more class codes that will be added to determine your restaurant’s general liability insurance rate.
Once the base rating exposure is identified the company can then modify the base rate up or down due to a variety of subjective underwriting factors such as management experience, risk management attitude and claim history. Once the base rate is modified the premium is then calculated by a simple formula: Rate X Exposure = Premium.
One caveat to the above is that some insurance companies will use dining room square footage as the base rate factor to determine a restaurants general liability cost in lieu of the gross sales.
An example using the gross sales formula would be as follows. Your annual restaurant gross $1,000,000, 30% of your gross sales derives from liquor ($200,000) and you have an on premises bakery which generates $200,000 out of the total gross. Your restaurant general liability rate factor would be as follows:
Base Rate =$1.710 / Modified Rate =$1.520
$1.525 X $800,000 = $1,216
Base Rate =$.270 / Modified Rate =$.266
$0.266 X $800,000 = $266
Base Rate =$.207 / Modified Rate =$.194
$0.194 X $200,000 = $38.80
Base Rate =$.350 / Modified Rate =$.356
$0.356 X $200,000 = $71.20
Base Rate =$.980 / Modified Rate =$1.278
$1.278 X $200,000 = $255.60
When you sell alcohol, insurance companies carve out your liquor sales from food and any other revenue stream to determine your restaurant liquor liability insurance rate. It’s important to note that insurance companies have varying guidelines for the percentage of revenue that they’ll allow for liquor sales.