Food trucks: A Growing Industry Tackles Insurance Issues

July 26, 2016 by Tiffany Hsu

Running a food truck seems as if it would be a creative, fun, delicious experience. Getting it insured is anything but.

Setting up coverage for a mobile eatery is a convoluted process. As both a restaurant and a money-making vehicle, such enterprises require business insurance, a commercial auto policy and whatever additional plans are required by the local government.

There are so many moving parts that some food truck owners say they can’t tell whether they’re fully covered. Others complain that peace of mind comes at an exorbitant cost.

“There are more players in the market now,” said Matt Geller, co-founder and chief executive of the Southern California Mobile Food Vendors Association. “But is there true food truck insurance? Not really.”

Some insurance providers, however, are starting to design customized plans.

This month, Farmers Insurance said it would blend commercial auto coverage with a restaurant business owner policy in New Mexico and Utah. The package will be available in 24 other states by year-end, according to the company.

Farmers currently insures 33,000 bricks-and-mortar eateries, said Tony March, Farmers’ product lead for the restaurant industry. More of those customers are now seeking coverage for their food truck ventures.

“Food truck operators, for the most part, have to stitch together coverage,” March said. “In such a fragmented market, they go bare or they find coverage from two or three different sources, so the first pain point we’re addressing is by allowing a one-stop-shop approach.”

Because of changing customer tastes and demand for unique, gourmet cuisine at affordable prices, food trucks now make up one of the best-performing parts of the overall food-service sector, according to a 2015 report from research firm IBISWorld.

The industry has grown at an annualized 9.3 percent rate between 2010 and 2015, IBIS said. And although the truck scene is reaching saturation in some cities, sales hit $856.7 million last year and are projected to expand to nearly $1 billion by 2020.

But popularity doesn’t prevent things from going awry on and around food trucks. Fires can break out, equipment can be stolen, a cook might have an encounter with the business end of a knife, a customer might eat contaminated food or the truck could be rammed by an out-of-control car.

“Food trucks have special needs that call for higher limits and specialized coverages to protect your employees, as well as the expensive grills, cooking equipment and any appliances that have been fitted to the truck,” said Brett Stalnaker, commercial auto product manager at Progressive Insurance.

General commercial liability insurance shields operators from third-party lawsuits over injuries, illness, property damage and trademark claims. When combined with business property insurance, it also covers the onboard kitchen, inventory, equipment and other physical items.

Italian New York Food Truck

La Baguette Cafe food truck parked in New York. Photo: ((Photo: Allan Harris/Flickr)

Commercial auto insurance comes into play when there’s a collision with another vehicle. Some policies cover damage inside the truck and even accidents in other vehicles deployed in service of the truck (such as when an employee is dispatched in a personal car to pick up more ingredients).

Workers’ compensation insurance is required for food trucks with employees and helps pay for medical bills if staffers are hurt on the job. Food trucks with a busy catering lineup also require certificates of insurance that extend their coverage to the venues they’re working with.

In an additional layer of complication, insurance requirements vary from place to place, which is problematic for food trucks that service different cities and even states. Some health departments require proof of insurance, while some municipal zoning agencies ask for specific types of plans, Geller said. Certain regulators require a minimum level of coverage.

“It does run the gamut,” he said. “It can get pretty frustrating pretty quickly.”

Still, more insurers are trying to break into the food truck industry.

Progressive offers food truck owners the commercial auto insurance piece of the equation and then relies on independent agents to round it out with general liability, business property and workers’ comp quotes.

The company is seeing double-digit growth year over year in the food truck segment, making it one of Progressive’s fastest-growing product lines, Stalnaker said.

The Food Liability Insurance Program has experienced similar growth, according to programs manager Ross Graham. Although the policy does not offer commercial auto coverage, it combines a general liability shield with something called “inland marine” protection, which applies to business property while at a fixed location or in transit.

Chop City Food Truck

Chop City Food Truck in Portland, Oregon. (Photo: (Photo: Kristina D.C. Hoeppner/Flickr)

Insure My Food Truck, a subsidiary of Brown & Brown Insurance Services of California, Inc. that launched in 2012, now has 900 accounts nationally, according to founder Denny Christner.

The company offers a restaurant policy and a commercial auto policy as a package — the two policies are sold and billed together, he said. The plan also includes a component that covers property wherever the insured is operating, as well as loss of income if a food truck lands in a body shop after a fender bender.

The food truck industry is still relatively new, so claims data remain sketchy at best. Experts expect underwriting criteria and rates to stabilize over time.

“It’s getting less expensive — food trucks were previously viewed as higher-risk roach coaches, but that’s changed,” Christner said. “Premiums have come down, but the carriers that have been trying to get into our space still don’t totally understand the industry.”