SPECIAL REPORT
INSURANCE RATES ARE PROVING THE HARD COST OF CLIMATE CHANGE
RESTAURANTS ARE GETTING HIT WITH BIG UPSWINGS IN THEIR PREMIUMS, EVEN IF THEY’RE NOT IN THE PATHS OF DESTRUCTION.
R estaurants that have never lost as much as a roof panel to climate change are learn- ing you don’t have to be in the path of a hurricane or tornado to catch some of the financial dam- age. A sharp reminder comes every quarter with the insurance bill. Mother Nature’s ailments are turning the once relatively stable price of property and casualty (P&C) coverage into a cost that’s climbing like a SpaceX rocket. “Most people’s rates have gone up by a minimum of 20% and to a maximum of 60%,” said David DeLorenzo, owner and CEO of two insurance firms—Am- bassador Group and Restaurant and Bar Insurance—that specialize in restaurant coverage. He’s also been an investor in 13 restaurants. “It’s crazy.” The wallop is particularly painful for a new property buying its first policy, no matter how far from the coasts or a tornado alley it might be. The foundation of the insurance business is the concept of a pool. BY PETER ROMEO
Premiums pour into a reservoir of funds from which damage reim- bursements are taken. Since right before the pandemic, the outgoing flow has been surging, in no small part because of environmental is- sues. That’s prompted insurers to keep hiking their prices—or to stop offering policies to high-risk cus- tomers like restaurants. Those drains on the pool aren’t merely high-profile catastrophes like Hurricanes Helene and Milton. According to Next Insurance, a new breed of insurer whose business model is based on a constant feed of data gleaned from claims, the fourth most-common reason for a reim- bursement in the $100,000-and- above range is water damage. With temperatures knocked out of whack by nature’s wobble, the cause could be a pipe that freezes and bursts, or water pooling inside from a heavi- er-than-usual rain, or snow melting faster than the ground can absorb the runoff. The costs for fixing those impair-
ments at a single restaurant can run as high as $1 million, according to Next.
THE BLEND THAT BURNS Insurers’ pools are also being drained at a faster clip today for rea- sons that have little if anything to do with weather or climate. Build- ing materials and the wages of con- struction workers have soared, so the cost of replacing a roof or fixing an entryway has climbed accord- ingly, significantly hiking damage payouts. “Anything related to P&C has accelerated significantly in the last few years, and the prime cause is inflation,” said Next Chief Product Officer Effi Fuks-Leichtag. “Every- thing costs more,” and the higher prices are being passed along. “No one is making extra money out of it.” The wallop is amplified for restaurants because many opt for the convenience of what the in-
8
RESTAURANT BUSINESS JANUARY 2025
ILLUSTRATION BY NICO HEINS/MIDJOURNEY
Powered by FlippingBook