Brushing Your Teeth is Like Managing Your Insurance Certificates

March 7, 2012

What Does Brushing Your Teeth Have To Do With Certificates of Insurance?

I’ve had conversations with three franchise executives over the last week to see if we can help reduce risk and lower costs for them and their franchisees. As part of the process of implementing a franchise system risk management and insurance program I like to audit their FDD insurance requirements and their franchisees’ certificates of insurance on file. So I asked each executive to send me the current Certificates of Insurance they had on file for their franchisees so I could compare them to their FDD requirements.

Well, the audit didn’t take long: With 300 total units between the three brands they only had two certificates on file.

I often tell my clients and prospects that managing franchisees’ certificates of insurance is like brushing your teeth. At the end of the day we may be tired and simply want to go to bed but we know that brushing our teeth at least twice a day will help avoid cavities. So we do it.

Now, brushing your teeth doesn’t guarantee that you won’t get cavities but it certainly reduces your chances. Likewise, maintaining and managing your franchisees’ certificates of insurance on file won’t guarantee you avoid any and all damaging vicarious liability claims, but it’s one of the best ways to reduce vicarious liability risks you are exposed to as a franchisor by making sure the level and limits of coverage your franchisees carry is right and proper. If the franchisee has inadequate insurance protection, you may very well be on the hook and financially responsible for the claim, especially if it forces the franchisee out of business. So, while you can still run the risk of being pulled into a claim through the acts of your franchisees, managing insurance certificates to ensure adherence to FDD requirements can reduce this risk and your costs should something happen.

The moral of this story is to brush your teeth regularly, and maintain certificates of insurance on file. The best approach is to work with a franchise insurance specialist who can either manage these for you or make the process so simple even your tooth fairy could do it.