Factors that Determine Pricing for Liquor Liability Coverage
Serving liquor at your restaurant can be a great profit driver, but comes with many hurdles that need to be handled by staff and management in stride. What many restauranteurs are unaware of, is that there at 50 different sets of laws governing liquor liability; one for each state. Some states, such as Alabama, carry very strict liquor liability laws, while other states, like Nevada, have very loose restrictions. In additional to each states laws, different venue types, whether it be a restaurant, nightclubs, or concert venues, each have additional nuances that must be met. Liquor liabilities insurance is designed to protect a licensee from third party liability, such as over-serving, serving minors, serving a known drunk, or serving an individual that gets in a drunk-driving incident after leaving the establishment. In order to understand your liquor liability coverage better, here are some of the factors that go into the pricing and protections that it provides.
Understanding risk factors associated with your liquor liability can be easily determined based off of what type of venue you are serving liquor at, and what state it is located in. There is no true “sliding scale” to determine amount of coverage necessary, but it’s understood that a fine-dining restaurant that serves food and liquor in a sit-down environment will be associated with much less risk than a nightclub, whose primary purpose is for entertainment and dancing. A bar will need to determine what their main purpose is, whether it’s a dining establishment or a drinking establishment first, since underwriters will want to see financial statements to truly understand whether food sales or liquor sales are what drives the business. Other venue types that require a liquor liability include concert venues, country clubs, fairs/carnivals, etc. Anyone who will be charging the general public for liquor will require a liquor liability policy.
Location of Venue
As previously mentioned, each state’s liquor laws are different, and no two are the same. These laws, known as “dram shop” laws, impose certain liability standards on venues that serve alcohol. Washington DC and Alabama carry some of the stiffest dram laws when a third party bodily injury or property damage claim arises. On the other end of the spectrum, Delaware and Nevada offer very lax dram laws, and tend to favor the venue when a question of negligence comes up.
Liquor Sales per Location
A major factor in the underwriting process of liquor liability is the percentage of liquor sales within the establishment. As one would image, when the percentage of sales is substantial, higher premiums can be expected. Based off these figures, the underwriter will classify the establishment as a restaurant, bar, nightclub, etc. This classification determines how the policy is written. For example, if you are a restaurant that has a large portion of sales in liquor, you may be determined a bar for underwriting purposes based off having a greater level of liquor sales than a “normally” insured restaurant. This type of classification can vary from insurance company to insurance company. The RPA team will find an insurance provider that insures a large number of your establishments, so that you are not an outlier during underwriting.
Individual Factors of Risk
In addition to the 3 previously mentioned areas, underwriters will look to see that your establishment is taking any additional precautions to prevent against liquor-related risk. Some of those factors include:
• Average age of patrons/proximity to college or university
• Experience level of management
• Loss prevention controls and procedures
• Types of entertainment provided at the venue
• Type of security (3rd party or in-house)
• Security-to-patron ratio
• Serving staff liquor training
• Allowing minors into the venue
• Procedure for dealing with intoxicated patrons
These areas are all things that your establishment should have determined, hired, or documented already, so be sure to have everything in order for underwriting, to make the efforts your establishment takes clear to the underwriter.
Liquor liability has become increasingly difficult to procure, due to the rise in alcohol-related driving accidents, as well as the rise of fake IDs and other underage drinking incidents. With the proper understanding of risk, venue, and location, and how they can factor into your policy, you can effectively position yourself for success during underwriting.