May 1, 2017

Insurance Needs With Food Businesses In Mind (PODCAST)

Most food entrepreneurs know they need business insurance but beyond that may not know exactly what to be looking for or asking about.  So in today’s podcast we talked with Joel Paprocki of to find out more about this important topic.


Jennifer:I often tell people when I’m talking to food entrepreneurs that, other than knowing that I need to have insurance for my business, I don’t really know much more beyond that, which is why we have Joel Paprocki on our podcast today. He is the owner of, and he’s a founding member of the local Austin Food Trailer Chamber and a passionate supporter of the mobile food movement and the eat local food movement. Working together with insurance companies and underwriters, he designed insurance programs specifically addressing the needs of food trucks, food trailers, caterers, and micro food manufacturers.


Shortly after rolling out the program in Austin, to much success, he expanded the program to a national level in 2011 and now represents food vendors of every type in nearly every state. Joel, who started the Paprocki Insurance Agency in 2004, is a certified insurance counselor and a charter property and casualty underwriter. Joel, thanks so much for being on with us today.


Joel Paprocki:Thank you, Jennifer, for having me.


Jennifer:Like I said, this is not my area of expertise, which is why I’m really excited that you’re here. Let’s start with a really basic question. That is, why do food businesses need to have insurance?


Joel Paprocki:It’s a good question, and a common question. It helps to take a step back. I feel like insurance gets a little misunderstood. There’s a multi-billion-dollar auto industry for insurance that markets that. Cost is what the consideration is, but especially for business, insurance that you look at as more of a tool, and it’s a vital tool of any economy and business. Some of the reasons for having insurance can be varied and all work together.


Most other people you deal with, whether it’s a landlord, a commissary, kitchen, an event, etc., are unwilling to take on the risks that you bring to them, so by having insurance, you can demonstrate that you have the means to pay and protect, and a lot of those entities will go a step further and ask to be listed as an additional insured on your policy, so it opens up business opportunities and kind of looks like a cost of doing business from one perspective. Another way that it’s a tool, it opens up opportunities to finance your company so, if you need to get a piece of equipment, you can get insurance on that, and that will allow you to get a loan on that equipment, so that’s another way it can be used as a tool.


I also really like the social responsibility of it. You may be willing, as a business, a startup business, to take many risks. You’re already taking a risk and jumping off starting a business, but there’s a sense of social responsibility. If a customer did get sick, maybe I don’t have assets, from that perspective, but I would feel responsible and want to have the means to compensate and take care of my customer if something tragic like that did happen.


Also, there’s a tool that frees up your capital in your business so, if you didn’t have insurance, you may have to store capital in case something did happen and pay that out of your own pocket. This way, you can transfer the risk to the insurance company for a premium, and then you don’t have to maintain as much savings to save for that rainy day or that scenario. You can transfer that. Of course, the more obvious that many people think about is, it does protect, make a wall around your assets, a layer of protection there, as well.


Jennifer:Which is important. If you’re working really hard to start up this business, that’s critical. To that point that you also mentioned about working in commissaries, kitchens, events, things like that, I know that a lot of food entrepreneurs I talk to, when they get to that point where they’re going out for their first “bigger” retail relationship, and the retailer won’t bring them on unless they have a certain amount of insurance and add them as an additional insured, like you said, to protect that store who’s buying your product, as well.


Joel Paprocki:Exactly. A large business may have millions and millions in assets, and to bring on a potential risk that you bring by doing business with them, they’re not willing to risk that even if in the startup phase, small businesses, so they’re going to require that of them.


Jennifer:A lot of what we talk about at Small Food Business, both on the podcast and on the website, is some of the differences and some of things that make food business a little bit different and unique from, let’s say, any other business that somebody might create. Are there differences also in insurance that, for things that food businesses need to be thinking about that might be specific to the food industry versus if you were talking to an entrepreneur of a hair salon, for example?


Joel Paprocki:There are some things that are similar. Everyone has a premises that they invite customers onto. Even if you’re a mobile vendor, where you end up locating, that is still your premises, and things can happen, and that’s pretty similar. Slip-and-fall, most people think of that when they think of needing a liability insurance.


Beyond that, the uniqueness to food vendors is going to be their product, so there’s product liability on most all insurance policies. Food vendors’ product is a little unique. It’s perishable. They have a lot of volume turnover. Compared to a hair salon, there’s really no product that they’re distributing. They’re doing more of a professional service, so that’s what is unique to the food industry is their product liability that they’re exposed to.


Jennifer:That’s interesting. I hadn’t thought about that, so you’re saying even for … Sorry, I’m going back to the first part of your answer. Even for like a mobile food vendor, even though you’re not bringing people, let’s say, into your store, into your restaurant, there are still potential, like you said, slip-and-fall and things that they need to be considering?


Joel Paprocki:Definitely. Actually, the truth is, those claims are probably 50-100 more likely than a food-related claim, so the reason they have liability in those areas is, whether they’re setting up a tent or they’re parking their truck next to an area, they can be found liable, even if they park next to a curb. Attorneys get creative so, if they turn around and slip over a curb or a divot in the sidewalk, and this is a real scenario I’m thinking of that was in Portland.


The city has a wording that says, “We’re not responsible for anything,” so that came back to the food truck that that person hurt their ankle on the divot in the sidewalk, which you would think the food truck had no responsibility over but, because of the way municipalities are and they worded it, that that goes back to the vendor because, as a business owner, unlike inviting someone into your house, you have a much higher risk when you invite a paying customer to do business with you and you have to go beyond just doing the normal.


We have to go a step further and predict and prevent risks from happening, and that’s where you see those claims where you see in the news that seem ridiculous, but you almost have to be the protector of the customer because you have the extra duty that you’re inviting them onto your premises and area. In that same category, people don’t often think about, and this is a common scenario, you put up a tent, and you put up a “We’re Open” flag or sign and the wind comes, blows it over, and it could injure someone, more likely the claim we see is it causes property damage to a car. It scratches the car of a customer next to it, and those area also under that same category or premises liability, but property damage versus injury.


Jennifer:Just as we’ve been talking, you’ve mentioned a couple of different types of, I guess, insurance coverage, whether it’s product, you had mentioned the premises. With all of these different options that are available, and I’m sure that’s just touching the surface, how does a food entrepreneur really start to understand what they need for their business and, yet, not get too much and pay too much? How would somebody work with you or work with another insurance company? What questions do they need to be prepared to both answer, and what questions should they be asking?


Joel Paprocki:I would start from the point of being able to work and trust their agent. I call it in our agency, “Love your agency.” That’s how you can provide the most benefit to the customer to get the coverages they need. If they’re going to a broker, it would be to be truthful on the application, be up front with what they’re doing so that the broker can properly analyze and offer the coverages.


Starting from a point of, “Let’s look at coverages, options, and then back from there if it’s not within cost or if you’re willing to take on the risk in that category,” and say, “That’s not a concern of mine, but I know it’s available.” This is the cost, and just approach it as open mind and open conversation and ask questions to clarify it so you can understand and ask examples of claim scenarios you may be concerned about, and then ask for advice on things that you might not be thinking about that may be a risk to you to explore all the options.


Jennifer:Without going, and I’m sure this is one of those things where you go super deep on, but at a high level … Again, we’ve kind of touched on the premises, and if I’m not using the right terminology, let me know, but we’ve touched on premises and product liability, what other big umbrella pieces should food businesses be thinking about? In my head, I’m envisioning, let’s say you’re working in a commissary kitchen and there’s a fire and you lose $10,000 worth of packaging, where does that fall under?


Joel Paprocki:What we’ve been talking about thus far is general liability, and then that encompasses bodily injury and property damage to, essentially, others or customer and look at it that way, the public. The other major pieces would be property coverage, like you mentioned, so your equipment, your business property, but it also could mean auto insurance if that property’s a vehicle.


There’s other coverages that are not as available, and people might not think about in the normal thought process, but there’s food spoilage, so if you were to lose your food due to spoilage. There’s loss of business income due to an insurance loss, and that’s one of the things I think is very important and overlooked in the industry but, if you have a truck or another piece of equipment in your commissary that you need to operate and make income, if that is damaged and you don’t have that income during that time while you’re trying to get it back up and running, that will put most small businesses out of business, and that’s also an important coverage.


Jennifer:That is something that you don’t really think about. You just assume that … It’s like you plan for the business worst case scenarios, but you don’t think that something might stop the business for a piece of time.


Joel Paprocki:Especially if you rely on that income as your primary income, your business from the food vending, obviously, that can be pretty devastating to not have a month or two months or whatever it might be, so it’s something to think through as a worst case scenario. Would you be able to absorb that or do you need to transfer that with an insurance policy?


Jennifer:If you had to say that there’s one big question that you always get from food entrepreneurs, or a consistent thing that you keep hearing that you always hear come up, is there one topic that food entrepreneurs are really curious about or have a lot of questions when it comes to insurance?


Joel Paprocki:It can vary. For the most part, the most small businesses just starting off are starting from scratch and just kind of learning what general liability is and what that means, so that’s probably the most common question. Beyond that is, how do I cover my property that’s moving around constantly?


That’s a little bit of a challenge for the insurance industry. They’re like, “Do you have a property that’s either a building or property located inside that building?” They don’t necessarily like to cover equipment that can be anywhere at any time and follow it. I get questions on that a lot because they’ll start with their agent who has their home and auto, and they’re just stumped on how to cover this property that’s moving around, so that’s a common question, as well as how to cover property that doesn’t stay in one spot.


Jennifer:That’s an interesting point. I imagine both for … Would folks who are going to farmers markets and festivals and, again, putting up tents that could fall down and things like that, would those … When we talked about moving around, my first thought is going to mobile food trucks. Somebody who is kind of moving their location, would that sort of also be that same type of concern?


Joel Paprocki:Exactly. The general liability policies are also, oftentimes, tied to an address, like an address on the policy. That’s kind of the way insurance is designed to do it, so even if they don’t have property, liability still needs to be able to follow you at the locations you’re going to, in addition to how property follows you.


Jennifer:I’m going to ask you a question that I know is not one you’re really going to be able to answer, which is going to sound odd. One of the biggest hurdles, I think, for food businesses, especially those who are starting up, is cost. I’ve heard from folks in the past, like, “Oh, well. I’ll get insurance for my business when my business hits X point.” What sort of things go into the consideration to kind of outline what the cost will be? I don’t expect that you can sit here and tell me, “Oh, a food business can expect to spend X a year,” but what sort of things might increase or decrease their insurance policy?


We’ve talked about some of the different kind of categories that they might be thinking about and, obviously, if you have one of those or don’t have one of those, that would decrease cost. Does the type of food that you’re producing, let’s say if you’re working with meat versus if you’re working with jams, does that impact cost at all?


Joel Paprocki:The cost is pretty flat and stable as far as types of food being vended. There are some exclusions that they’re unwilling to look at, and I’ll go over those in a second. General liability policies will start around $300, and they’re primarily based on your sales, so an insurance company, if you’re selling $100,000 worth of food, you’re turning over more product, more chance for a risk, so that’s really what they look at on general liability to rate the policy if it fails, so that’s that piece.


As far as certain categories, like you mentioned meat, if it’s directly importing meat from another country, that’s one that’s probably not going to be able to be looked at on most policies. Certain things that make health claims or dietary supplements that fall into those categories are areas where it’d be much more challenging to find a policy that would be affordable for someone starting off.


Jennifer:The amount of equipment that you have and truck and all of that, does that, again, go into the equation?


Joel Paprocki:It does. Initially, they’re just focused on general liability and what they look at. When you add property to it, the coverages will go up proportional to the value of the equipment, etc., so that would be added on top of that. There’s things like, if it’s a truck, like a food truck, you have automobile liability, which is separate from general liability, so those can add cost, as well.


Jennifer:This is, like I said, not an area that I’m an expert in, but an area that I, personally, have always … I always joke with food entrepreneurs that I’m as risk-adversant as you can be as an entrepreneur, so insurance for me, like I said, is one of those things that I need to have for my business to protect this business that I’m trying to build and, ultimately, to protect me, too, and protect my assets, as well. I know that this will be something that’s of interest to a lot of people who are out there.


I’m going to include a link to your website, the website that folks will be able to link to from the transcript from this podcast to find out more information because I know that you have some more information on the website and some more resources on there, too, to help guide people if they’re in either the beginning of this process or, after listening to this podcast, realize that they need to potentially take a closer look at their insurance policy and either add things, subtract things, whatever it is, to make it work for them, but insurance is definitely a critical issue, especially for food these days.


Joel Paprocki:Definitely. I appreciate that, and I’m always happy to answer any questions if anyone reaches out.


Jennifer:Perfect. I appreciate that. Joel, thank you so much for taking a little bit of time today to talk with us.


Joel Paprocki:Thank you, Jennifer.


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