At a recent renewal meeting with a client, the question was asked, “how are my restaurant insurance rates determined”? The easiest way to explain how restaurant insurance rates are determined is to start from the beginning which is to first address the underlying fundamental rating criteria which is called the rating plan.

The Insurance Rating Plan
All insurance companies have a rating plan and this plan is based on one major factor, a company’s loss experience. In it’s simplicity the loss experience of an insurance company is the losses divided by the total premium that it collects. The insurance company then uses their loss experience, and determines its future costs using actuarial science techniques to determine risk calculations and sets its base rate for each risk classification. The base rate begins as the starting point for how your restaurant insurance rate is developed. The base rate is then modified by each individual insurance carrier, adding credits or debits, called the modified base rate which is used as the multiplier for each line of insurance you are purchasing.

In my next article we will get a bit more insurance geeky and discuss how a restaurants general liability insurance exposure is calculated.