Restaurant Insurance That Won’t Eat Your Margins

Restaurant Insurance That Won’t Eat Your Margins

As a successful restaurateur, I’m sure you’ve been bitten by a large insurance audit bill after a great year!

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Picture This:

Things are going great – you’ve been turning extra tables  while successfully cross selling apps and desserts which means average check numbers are up, so the server’s tips are up and everyone’s in a good mood.

Then your Restaurant Insurance renews and your gross sales and payroll both get audited and…

You’ve got a huge insurance audit bill that must be paid in full NOW or they’ll cancel your renewal policy!

The first time it happens, you were probably pretty upset. It feels like you just got robbed, or worse – taxed – for being successful! 

Why is the insurance company “stealing” your profits?

When your sales increase – your General Liability insurance increases because Restaurant Insurance companies calculate liability premiums by multiplying their flat rate by each thousand of your gross sales.

Liability Premium = Flat Rate x (Gross Sales / 1000) 

Despite the fact that it feels like you’re getting jacked – premium audits are a routine part of most General Liability and ALL Workers Compensation policies.

The Insurance Services Office (ISO) creates rates and rules, as well as writing standard insurance language. ISO requires insurance audits to ensure that the insurance company receives the appropriate premium for the exposure they insure.

More patrons means more $$ for you, but more liability for your insurance company

Think about it – if your sales are up, that means you’ve served more customers than you anticipated.

For you, that’s awesome – you made more money and you’re riding high!

From the insurance company’s perspective, however, your restaurant exposed them to more opportunities for a claim (I know, right, we insurance people ALWAYS see the silver lining!).

The same principle applies to Workers Compensation. If your payrolls grow, so do the opportunities for an employee to slip and fall by the ice machine or cut their finger during prep.

Is there any way to beat the insurance audit?

Luckily, I have discovered two strategies for beating the Restaurant Insurance audit!

  • Use a Business Owners Policy (BOP) that does not use sales as a rating basis for liability
  • Use a Workers Compensation policy that offers Pay As You Go payroll reporting & billing options

General Liability that’s not based on Gross Sales

Traditionally, the General Liability portion of a Commercial Package Policy (CPP) required sales as the premium rate basis.

When the Business Owners Policy (BOP) was invented by Allstate, they based General Liability rates on the amount of property insured. Some food service businesses still benefit from this rate structure, like delicatessens that don’t have deep fat fryers or table service.

Other restaurants aren’t so lucky. Today’s BOP functions much like the CPP for it’s liability rating – with sales again providing the basis for General Liability rates.

Get a BOP that Beats the Insurance Audit!

There are some BOP policies that rate for liability based on square footage open to the public instead of sales. This rating structure allows you to use a STATIC feature of your restaurant to generate your liability premium.

Since square footage doesn’t change even if your sales increase, you won’t be penalized when your restaurant turns more tables!

Case Study

Side by Side comparison of CPP Liability based on Sales and BOP Liability based on Square Footage

The Commercial Package illustrated above estimated $300,000 in annual sales, but in reality the actual sales for their first year were going to be closer to $900,000 to $1,000,000 in gross sales.

If this restaurateur hadn’t switched, at the end of his policy he would have been looking at a MASSIVE insurance audit bill.

Beat Your Insurance Audit Here!


Workers Compensation won’t go down so easily.

Its Rate Basis will always be payroll

Unfortunately, Workers Compensation will ALWAYS be based on your actual payroll. There’s no way around it.

Workers Compensation Premium = Company Rate x (Remuneration / 100)

WAIT – you may say – I thought the STATES made the workers compensation rates?!

That is partially true. In Pennsylvania, the Pa Compensation Rating Bureau (PCRB) DOES make the rate for each class code.

Here are PCRB rates effective 4/1/2017

Class DescriptionClass CodePCRB Rate
Full Service Restaurant9751.25
Fast Food Restaurant8971.30
Bar, Nightclub8991.13

Those rates are NOT what you get charged by your workers compensation insurance company. Each workers comp company has a Loss Cost Multiplier (LCM) that they apply to the PCRB rates that determines how much you’ll be charged for each $100 of payroll.

Here are NorGUARD rates effective 4/1/2017 after their 1.6020 LCM was applied.

Class DescriptionClass CodeNorGUARD Retail Rate
Full Service Restaurant9752.05
Fast Food Restaurant8972.13
Bar, Nightclub8991.86

Notice how much higher the company rates are than the PCRB “State” rates. NorGuard offers standard rates, that are a market norm, so its not because NorGUARD is expensive. It’s because these rates represent what insurance ACTUALLY costs, not what a regulator thinks it should!

Changing Rating Basis Won’t Work for Workers Comp.

Unlike general liability, we can’t beat your workers compensation insurance audit by changing your rating basis.

We do have a successful strategy that will ensure your annual audit bill for workers compensation is $0.00!

Beat Your Workers Compensation Insurance Audit with Pay As You Go processing

Since the rating basis can’t be changed for workers compensation like general liability, you need to beat the workers comp audit with a different strategy: modifying your payroll reporting method.

A typical workers compensation policy ONLY requires you to report actual payroll numbers after your policy period has ended. They then adjust your TOTAL ANNUAL PREMIUM based on the audit, and bill you for the total difference.

Pay As You Go workers compensation allows you to report your ACTUAL payroll on a regular basis, which then adjusts your premium to reflect the payrolls you processed during that period.

You can report on a monthly basis by yourself, or you can have your participating payroll provider report on a bi-weekly or weekly basis, depending on how often you pay.

Not every workers compensation insurance company offers a Pay As You Go option. Lets face it – its a new trend, and insurance companies move slowly.

Not every independent agency offers Pay As You Go workers compensation billing plans. Agencies, much like companies, can be slow to pick up on the latest shifts in the market.

Most Insurance Agencies & Most Insurance Companies racing together toward innovation!

Some payroll companies will offer to sell you the workers compensation insurance through an in-house insurance agency – as well as doing the payroll reporting for you.

This is not a very good idea for two reasons:

  1. Their insurance agency force tends to be located far away in a call center environment, and is staffed by agents of varying levels of qualification with questionable levels of turnover. (sourced to an anonymous insurance company rep who works with these payroll company “agencies”)
  2. They charge a fee every time they report your payroll to the workers compensation company!

    That bread better NEVER go back in that bowl!

The fee is really what gets me – they get paid a commission by the insurance company THEN charge their clients for some minor data entry. The fee may only be $8 – $15 per reporting period, but over a year that can be several hundred dollars, especially if you pay weekly!

Its totally double dipping! Except rather than being rude party-goers, they’ll dipping into their client’s wallets!


In this video, I discuss Pay As You Go workers compensation with Matt Gray from Heartland Payment Systems.

When Heritage Insurance Agency and Heartland Payment Systems work together, we provide you with Pay As You Go workers comp at some of the most competitive rates, with very little work for you to do, and (best of all) NO FEES for reporting the data to the insurance company.

My goal with this post is to help restaurant owners and operators IMPROVE their bottom line by creating an efficient, and stable restaurant insurance program that won’t punish you for success with a terrible insurance audit.

By teaming up with Heartland Payment Systems – I can keep more of your hard earned money in your pocket because of their focus on service, and the fact that they don’t tack on “junk fees” for a value added service like Pay As You Go workers compensation.


  1. Heritage Insurance Agency offers a BOP policy that will not audit your sales for General Liability rating.
  2. Not Every Workers Compensation Company, and Not Every Independent Agency offer Pay As You Go Workers Compensation insurance billing options!
  3. When Heritage Insurance Agency and Heartland Payment Systems work together, we keep the MOST money in your pocket through great Workers Comp rates, and NO JUNK FEES on payroll processing!
  4. Heritage Insurance Agency and Heartland Payment Systems – an unstoppable force to save your restaurant money!



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