Summary: As restaurant systems expand, traditional insurance often fails to match the frequency, pattern, and financial impact of operational exposures. Multi-unit operators must recognize when it’s time to reevaluate risk financing strategies to align with their growth complexity.
As restaurant systems expand, operators uncover a truth left neglected: risk scales with growth. Multi-unit restaurants reach a stage where operational complexity intensifies more rapidly than the systems built to manage it. At this point, savvy leaders recognize that traditional insurance no longer reflects the frequency, pattern or financial impact of the exposures they face.
Losses that once seemed isolated start repeating across markets and labor structures. Operators discover that their most frequent disruptions are not catastrophic events, but the steady drumbeat of operational, workforce and technology-driven issues that emerge when managing many units simultaneously.
When Scale Changes What Risk Really Looks Like
Multi-unit operators experience loss patterns that small systems rarely encounter.
National data makes the scale of these exposures clear. The U.S. Department of Energy estimates that power interruptions cost American businesses more than $150 billion annually. Restaurants feel the impact immediately because refrigeration, ventilation, HVAC and POS systems depend on continuous uptime. Even brief interruptions can disrupt revenue and inventory across multiple stores.
At the same time, foodborne illness incidents—even minor ones—carry significant financial consequences. CDC analyses show that even minor contamination can cost a restaurant anywhere from several thousand dollars to more than $100,000, depending on the scope of response and reputational fallout.
These exposures often fall below commercial deductibles or into policy exclusions. As a system grows, a pattern emerges: losses that appear manageable individually start to accumulate in ways commercial insurance was never designed to address.
The Exposure Curve Bends as the Brand Expands
As restaurant groups scale, several categories of risk become more predictable and tend to surface across locations in consistent patterns:
- Operational failures. Walk-in coolers, fryers, ice machines and ventilation systems rarely fail uniformly. When multiple units experience downtime in a short window, the financial impact compounds.
- Supply chain disruptions. Industry reporting shows that supply chain challenges remain among the top concerns for multi-unit operators. Delays or shortages in key ingredients can create measurable revenue loss across many stores.
- Labor-related exposures. Wage and hour claims remain a persistent source of volatility for restaurant groups, with restaurants consistently among the industries most targeted. These losses often fall below commercial deductibles yet recur frequently.
- Brand and reputational exposure. As a brand expands, small operational incidents take on greater weight. A single contamination event or compliance issue at one unit can create broader reputational risk.
- Modern digital vulnerabilities. Restaurants depend on POS systems, online ordering and integrated technology platforms. IBM’s Cost of a Data Breach Report shows the average breach now exceeds $4 million, and hospitality remains a frequent target. A single outage or breach affects revenue, labor allocation and customer experience across the system.
These exposures share a common characteristic: they repeat predictably and fall into a layer of risk that commercial insurance does not price or insure effectively.
The Moment Operators Realize the Market No Longer Fits
Consider a system operating a dozen locations. In one year:
- a walk-in cooler fails, causing spoilage at one site
- a POS outage disrupts operations across two states
- a minor contamination triggers an ingredient withdrawal
- multiple wage and hour settlements arise
Individually, none justify a commercial insurance claim. Many fall below deductibles or into exclusions. Taken together, however, they form a predictable loss pattern that materially affects performance.
How Sophisticated Operators Use Advanced Risk Tools
As recurring exposure becomes more visible, many operators reassess whether their insurance structure aligns with the scale of their risk. The commercial market is not designed to absorb the predictable operational and labor-driven losses multi-unit systems experience each year. Therefore premiums go up as the business expands, but more claims go uncovered.
A captive insurance company, when formed and managed correctly, functions as a regulated entity that insures the business’s own risks. Captives:
- price premiums using actuarial support using own historical data and not just market data that shifts based on broad insurance market volatility
- maintain cash reserves that can be reinvested through favorable loss years
- pay claims similar to traditional insurers
- assume high-frequency, low-severity risks that commercial policies treat inconsistently
Some structures may qualify for Section 831(b) taxation, allowing underwriting profit to be taxed at zero percent. The landscape for 831(b) captives has matured significantly. The Supreme Court’s unanimous ruling in CIC Services v. IRS reinforced that these captives are legitimate with the right structure. Today, scrutiny is narrower and more focused on outliers, not operators insuring real, recurring risks. The right structure factors in scale, predictability and governance.
Assessing Advanced Risk Tools With Clarity
Advanced risk-financing structures, including captive insurance companies, require rigor. Problems emerge when organizations shortcut regulatory expectations or rely on advisors lacking insurance expertise. Common pitfalls include:
- premiums priced without actuarial justification
- inadequate risk distribution
- insufficient documentation
- insuring risks unrelated to the business
Recognizing these challenges helps operators evaluate whether any alternative risk tool is appropriate.
Some questions, if answered yes, clarify whether a more advanced strategy warrants exploration:
- Do the locations share consistent operational characteristics?
- Do recurring operational or labor exposures fall outside the effectiveness of commercial coverage?
- Has the insurance market introduced exclusions or volatility that affect planning?
- Do franchise-specific risks align poorly with standard underwriting?
- Would retaining underwriting profit support long-term financial objectives?
The Time is Now to be Proactive with Risk Strategy
As restaurant groups scale, certain signals often indicate it is time to reevaluate how risk is financed. Insurance spend increases, reputational exposure broadens and operational patterns become more consistent across locations. These shifts reveal whether traditional insurance continues to match the way the business experiences loss.
Recognizing this change does not point to any single solution. It simply marks the moment when mature operators assess whether their existing tools support the complexity of the organization.
Ready to understand whether your insurance structure aligns with the realities of your growth? Connect with us to explore strategies that may enhance predictability and protect your expanding brand.
This article originally appeared in QSR Magazine on January 28, 2025.
About the Authors
Tim Welles executes business development for CIC Services. His 30-year financial services career began in 1989 as the Director of Risk Management for Pi Kappa Phi Fraternity where he oversaw the risk management and insurance programs for the fraternity’s four entities and 130 undergraduate chapters. During his captive career, Tim has been involved in the formation of over 60 captive insurance companies. He received his BBA in Finance from the University of Oklahoma.
Nathan Robnett has 22 years of public accounting experience and a strong record of building and scaling professional services practices for insurance companies. At Aprio, he leads the growth of the firm’s insurance practice, where they have more than doubled services serving captives in the past year. He has previously served captives at several other firms, including overseeing quality and growth for EY’s global captive practice. Through these roles, he has been part of teams serving over a 1,000 different captive formations from domiciles all over the world. He is a Certified Public Accountant licensed in Oklahoma, Texas, Hawaii and Florida, approved to perform captive insurance audits in several U.S. domiciles, and holds an MBA and bachelor’s degree in accounting from the University of Central Oklahoma.
