I’ve written a lot recently about vicarious liability and how a tailored franchise insurance and risk management program is an important way to prevent and reduce risk to a franchise brand. While there is clearly value for both franchisors and franchisees, my recent articles have focused more on the benefits to the franchisor. A well designed and implemented franchise system insurance program is also very important for franchisees and can greatly enhance their business. In fact, I strongly believe that this type of program has to, first and foremost, work for the franchisees because from the brand and the franchisor can’t be protected unless the franchisees are protected. They are the most important link in this chain.
With that said, here are the top five benefits to franchisees of a successful insurance program.
- Peace of Mind: Owning a franchise is a dynamic, challenging and exhilarating endeavor. As a former franchise owner myself I know firsthand that every day brings new challenges. Not only do you have to deal with all the joys and challenges of running and growing your own business but you need to do it under the umbrella of the bigger brand. As a franchise owner you may not have the time to fully understand all the risks that affect your business as a result of the franchise model and often just opt for the cheapest insurance. Being part of a well thought out and implemented franchise system insurance program, tailored to your particular franchise, will provide you the peace of mind knowing that you have the right coverages in place that cover your most likely risks, thus allowing you to focus on growing your business.
- Compliance is Good For All: Compliance isn’t just a franchisor concern, nor is it a dirty word. Compliance with FDD insurance requirements is something franchisees should welcome and take seriously. There are numerous examples whereby a franchisee did not carry the proper insurance coverage and as a result of a claim they were either out a significant amount of money or forced out of business. In addition, this affects the franchisor because they are often named in a claim, which takes their time away from growing the brand. Other franchisees are affected because often this results in negative publicity in social media and blogosphere arenas.
- Enhanced Insurance Coverage: Getting better insurance coverage does not mean you need to pay more in premium. Often it is as simple as matching coverages to your exposures. My biggest pet peeve about purchasing business insurance it that too often buyers try to find the cheapest insurance with little or no regard to whether it actually provides the business protection they need. Too often the agents that work with them are complicit in this, simply selling them a “one size fits all policy,” which many times cause franchise owners to have insurance that does not cover their main risk exposures. A proper franchise insurance program covering your exposures is the first and best place to start. Additionally, bringing franchisees together under one program often makes it possible to add coverages to help cover other exposures their business faces. Franchise systems are always looking for new ways to generate revenue and often new products, services or operational procedures are added without checking insurance coverage. Another advantage of a system-wide insurance program is that as changes occur they can be underwritten once with coverage added across the board.
- Pricing: See pet peeve #1 above. Cheap insurance does not equate to proper balance sheet protection of your business. Penny wise and pound foolish is the saying that comes to mind as too often I’ve seen business owners “save” a couple of hundred dollars on their insurance only to realize they did not have the proper coverage at time of loss. Price is very important, but the key is getting the best value (coverage + claim handling + service + price) that you can. The best way to do this is by bringing together the buying power of multiple franchisees. It is easier for insurance carriers to affect pricing because they can see the overall results of multiple franchise businesses from a loss and pricing perspective and adjust accordingly. Many times we are able to keep insurance costs down as the program grows because of these overall results. Price is nice but price plus the right coverage is the best balance sheet protection.
- Leverage: This brings us to our final point: The opportunity to bring greater leverage into your negotiations with the insurance carriers. Bigger businesses, generally speaking, get more attention and service from the carriers because they have the premium dollars that scream, “Listen to me!”. One of the complaints we hear from individual franchise owners, before we get them into a program, is how they don’t seem to have any leverage with the carrier because their business is small. Carriers do value their small business clients, but value and leverage are two different things. Leveraging multiple franchisees within a single franchise system can help bring additional coverages, services and better pricing over time. This leverage also means the carrier can take on some additional risk from their perspective because they have the premium dollars to do so. This may mean taking a location with above average claim activity or issuing insurance in a tough-to-write state.
As you can see there are some very real benefits to franchise owners to work with their franchisor in setting up an insurance program tailored to their particular brand. Doing so properly will be a win for all, and will enable you to have the peace of mind to focus on other important aspects of your business.