Many businesses are preoccupied with profit margins
that they can neglect vital factors which help maintain the success
of their company. The management of one’s risk is a vital factor.
Identifying ones risk exposure and ensuring that systems are in
place to mitigate potential threats is crucial.
Because franchising covers so many different industry sectors,
the insurance needs within franchising can vary greatly. Depending
on the nature of the business activities, each franchise model
should be looked at individually and a structured insurance
programme tailored to ensure the specific needs of all parties are
There is a specific relationship between the franchisor and
franchisee which is important to recognise where insurance is
concerned. Ideally, measures should be in place from the outset
where an insurance clause is built in to the franchise agreement
specifying minimum requirements to satisfy the franchisor. All too
often franchisors adopt the policy that the franchisee can be left
to their own devices to arrange their insurances. It is a very
short sighted approach and can have grave consequences should the
franchisee go bust with outstanding liability.
The advantages of having an insurance facility
arranged and in place at franchisor level for franchisees to take
advantage of are as follows:
1. Franchisor peace of mind that the correct
cover is in place for the franchisees and therefore protecting
2. Benefit to the franchisee as they do not
have to arrange the cover which can be time consuming and daunting
if you do not know what to buy.
3. Preferential rates can be secured through
economies of scale. This helps keep costs down and can be used as
an incentive to incoming franchisees.
4. Depending on the scale of the insurance
programme, you can be in a stronger position to negotiate wider
5. Claim patterns and trends can be
identified and measures put in place to try and avoid any
6. Possible finance deals can be agreed with
insurers to allow interest free monthly payments.
7. Much more efficient, allowing franchisees
to focus on running their business.
8. Should a dispute arise with the insurer
over non-disclosure, a group policy should provide more leverage
for the policy holder.
Insurance schemes can be structured in many ways and they do
not need to
necessarily be managed by the franchisor. Depending on
insurance requirements and how ‘hands on’ the franchisor
wishes to be, they can either actively manage the scheme whereby
they are collecting premium and notifying claims or they
can simply refer all matters to the placing broker to manage.
Should the franchisor choose the former, it is important they
consider any FSA implications, especially if they are
collecting premium or giving insurance advice.
A popular solution is the ‘statement of fact’ which is a
pre-priced form that offers cover based on strict criteria. If
the franchisee satisfies the criteria, they can accept the cover
and decide when the policy incepts immediately. It means the
franchisee does not have to submit a presentation to insurers
prior to receiving a quotation and can easily be included as part
of a start-up pack prior to the franchise agreement being