The average foodborne outbreak at a restaurant can cost $100,000 in lost business, wages, and medical and legal expenses. Add to that the typical 30 percent drop in sales following the episode because of bad press, according to numbers provided by Jan Schnabel, head of the hospitality practice at Marsh. Then figure that 24 million to 81 million foodborne illnesses occur every year--and as many as 10,000 people die because of them--and total costs from such illnesses could be between $7.7 billion and $23 billion annually.
Or put another way, one single sickness could sink a whole brand. Worries about protecting brand reputation keep all restaurant CEOs and chief financial officers up at night, says Stephen Levene, executive vice president at Lockton.
And a standard general liability product won't get them some Zs. GL typically only pays if a diner gets sick or is injured. It would not pay for adverse media attention and the resulting brand damage, says Schnabel.
One way that risk managers could soothe their executives' concerns is by buying brand-protection insurance that can pay for lost revenue and business. Adverse publicity triggers the cover.
More and more of the largest companies are looking to buy specialized protection, in part because the standard off-the-shelf policy does not provide protection against bad food from suppliers, says Levene.
Many are moving away from buying lower deductibles and smaller limits and instead figuring out how much earnings per share they could retain and not affect their overall financial status. It could amount to a $10 million to $20 million loss, he says.
Then the company would buy brand protection coverage, some $100 million to $200 million over that retention. The period of indemnity typically is six, 12 or even 18 months. But most importantly, the coverage is tailored to the specific operations of the client.
"If it's done right, it's very customized," Levene says, adding that these policies must account for exactly what a company's business is and cover where the real big exposures are.
Schnabel says it has also become the practice at Marsh to offer clients the option to purchase foodborne illness/business income coverage, or trade name restoration coverage. Again, the coverage pays out for expenses needed for marketing and lost business income due to bad publicity. FBI coverage can also pay for crisis management expertise to handle the media and government officials. More and more clients are looking at it.
April 15, 2008
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