#Insurance Costs #Workers' Compensation #California Restaurants

Rising Costs for California Restaurants: A Double Insurance Hit

California's restaurant industry is currently facing a significant financial challenge as two crucial insurance cost increases are set to take their toll this fall. According to William Lemmon, a prominent insurance broker from Los Angeles, many restaurant owners might not even be aware of the full extent of these hikes.

Workers' Compensation Rates Surge Again

As of September 1, California has seen a 6.6% increase in workers' compensation insurance rates, now sitting at $1.65 per $100 of payroll. This marks the second consecutive year that these rates have risen, following nearly a decade of stability or decline. The higher costs can be attributed to rising cumulative trauma claims and increased medical expenses, alongside growing claims-adjustment costs. For restaurants, which have some of the highest payroll-to-revenue ratios of any business in the state, this increase is profoundly impactful.

Lemmon explains, “Workers' compensation is priced based on payroll. Because restaurants tend to have higher payroll per revenue than almost any other industry, they quickly feel the effects when these rates go up.” This rapid adjustment underscores the vulnerability of restaurant operations in the face of rising labor costs.

The Hidden Increase in Commercial Property Insurance

While the workers' compensation hike is more noticeable, the second rise in insurance costs remains less visible yet equally concerning. Commercial property insurance prices have climbed significantly across California, and this cost is often passed on directly to tenants under triple-net (NNN) leases, which is standard in the restaurant industry.