So, you’ve done it. You’ve found the perfect business through GSE. You’ve got the keys, and you’re ready to welcome the crowds.
But before you froth that first cappuccino or pour the first pint, there is one slightly dull box you need to tick: Insurance.
We know. You’d rather watch paint dry. But in hospitality, getting the right cover isn’t just paperwork; it’s the difference between a bad day and a “we have to close the doors” day. It may even be a legal or contractual requirement that you have some cover.
Here is a guide to what you need and how to ensure your premiums are as affordable as possible.
The “Big Three” To Consider on Day 1
When you take over a hospitality business, you aren’t just buying a lease; you’re buying risk. To open your doors, you generally need these three things (which you can read more about here):
1. Public Liability: In case someone slips on a flat white or trips on a rug.
- Note: This one is rarely optional. Your landlord will almost certainly require it in the lease, and if you serve alcohol, Liquor Licensing will likely require you to show your certificate before you trade.
2. Property & Contents: To cover your fit-out, stock, and that expensive espresso machine.
3. Business Interruption: To pay the bills if you’re forced to close temporarily.
That’s the short version. But the cost of these policies depends entirely on who you buy them from.
The Dirty Little Secret of Commissions
Here is something most brokers won’t tell you.
When you buy a policy, the broker usually takes a “commission” from the insurer. It’s invariably a percentage of your premium. This creates a conflict that, literally, financially incentivises brokers to give you a high premium: the more you pay, the more they earn. Not all companies are like this (ours isn’t) so make sure you do your research.
FAQs: The Stuff You Actually Need to Know
Q: Can I just take over the previous owner’s insurance policy?
A: No. This is a common trap. You are a new legal entity (with a new ABN), so you need a fresh policy starting from the day of settlement. You can’t just “inherit” their cover like you inherit the furniture.
Q: What exactly does Public Liability cover in a cafe/restaurant?
A: It covers you if you are negligent and someone gets hurt or their property is damaged. In hospitality, this usually means slips, trips, falls, or, god forbid, food poisoning allegations. It covers the legal defence costs and any compensation you have to pay. It may be a requirement of your Liquor Licence or tenancy agreement.
Q: Do I really need Business Interruption insurance?
A: It’s optional, but we recommend it. Imagine a small kitchen fire happens. The fire damage might only cost $5k to fix, but you might be closed for 6 weeks for repairs. Business Interruption covers your lost income during those 6 weeks so you can still pay rent and key staff. It’s the “payroll saver.”
Q: Why is my premium higher than the guy next door?
A: It could be risk factors (do you do deep frying? Do you serve alcohol?), but it could also be the “Lazy Tax.” Many brokers let premiums creep up every year (increasing their earnings) without checking the market.
Q: How do I know if I’m paying hidden commissions?
A: You almost certainly are. For business insurance, brokers are not obliged to tell you upfront what commissions they will earn; though, if you ask, they must tell you. Ask your broker: “How much are you earning from this policy in total dollar terms?” If they stutter or give you a vague percentage, you’re likely overpaying. At Luma, we show you the numbers upfront so the math always adds up.
You’ve got the keys. Now protect the asset.
Buying a hospitality business is a whirlwind of excitement, but there’s one box you need to tick before you froth that first cappuccino: Insurance.
We asked our friends at Luma Insurance to strip away the jargon and explain exactly what cover a new hospitality owner needs (and what they don’t). And, most importantly, how to keep your premiums down.
