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Playing Restaurant Roulette with general liability

There are more than 1 million restaurants in the United States, and anyone who’s ever eaten out can attest to the fact they are not all alike. From fast food joints and greasy spoons to haute cuisine and places you’d never consider going unless someone else was paying, the range is enormous. There are many factors that go into a decision about where to eat besides the obvious quality and price of the cuisine. Do you want to serve yourself or have table service? Would you like to buy alcohol on premises or bring your own? Do you want a nice, quiet place or a raucous bar and dance floor?

With so many variables, a little research helps when dining out. That’s when various food and travel guides, friendly recommendations, personal experiences, websites, and rating services can help take the guesswork out of selecting a restaurant—and help you avoid playing Restaurant Roulette.

When it comes to restaurants and other businesses, general liability underwriters are in a similar situation and need much of the same information to properly assess risk. My colleague Kevin Byrne and I recently presented a web seminar on the topic, Insight for General Liability Underwriting. In it, we used a food establishment as an example and walked web viewers down a restaurant risk path.


The first step on the path is the same for every underwriter. You are presented with a general liability application by an insured or, most likely, by an agent. For some underwriters, that may be the first and last step on their path. The underwriter may do some time-consuming research from various sources or take the application largely at face value.

In this example the application clearly states that the general liability code is 16910, signifying that it’s a restaurant with less than 30 percent of sales from alcohol. As presented, it would have a loss cost of 2.348* and result in a hypothetical quote from an insurer of, let’s say $11,740. The problem is that 16910 is one of the most common general liability codes and often a “catch all” for a restaurant. There are 19 other similar business classifications with some important distinctions.

As we travel down the path it becomes apparent that there is no kitchen, which points to much more alcohol sales and consumption than 30 percent. The place advertises itself as a bachelor and bachelorette party venue, with a self-described “energetic dance floor.” That information in and of itself changed the general liability code. Other factors were also revealed along the way, including the number of employees, estimated annual sales, floor area, observed hazards, property details, risk potential of neighboring businesses, credit score, credit benchmark, and OSHA violations. The factors added up to a much more complete picture of the risk presented.

What was the general liability exposure after obtaining the additional information? When all was said and done, those factors indicated a loss cost of 5.780 rather than 2.348. When you extrapolate out from the insurer’s initial quote of $11,740, you actually end up with $28,900. The difference represents a much higher loss ratio, resulting in potential lost profitability.

How do we know all of this? As you’ll see in the web seminar, available here on-demand, it’s part of our General Liability Advantage Report, which covers all types of businesses.

Rick Stoll

Rick Stoll is vice president for commercial underwriting products at Verisk. You can contact him at

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