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
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 tonecessarily be managed by the franchisor. Depending on
insurance requirements and how ‘hands on’ the franchisor wishes to
be, they can either actively manage thescheme 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 ifthey are collecting premium or
giving insurance advice.
A popular solution is the ‘statement of fact’ which is a
pre-priced form that offerscover 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
franchiseedoes 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.
