Insurance is a crucial element to the protection of one’s business

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 suit the specific needs to ensure all parties are covered.

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 their interests.

    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 coverage.

    5. Claim patterns and trends can be identified and measures put in place to try and avoid any reoccurrence.

    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 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 signed.

I hope to be writing more articles relating to franchise specific insurance service over the next few months so please do follow my series. The next topic I shall be discussing shall be Professional Indemnity Insurance. Please do feel free to contact me should you have any queries.

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