One of the challenges we face in designing and implementing a franchise business insurance program is a common misperception. Franchise owners often think insurance is a commodity and that finding a price that is $50 cheaper than the next is the best. Actually, there is so much more to it. Often the lowest-cost insurance product will not give you the protection from the risks that are the most likely to affect your business. This, of course, can actually eliminate any value and any cost savings of that product immediately when and if a claim occurs.
When designing an insurance program for a franchise system, a key consideration is to customize and expand insurance coverage types that actually align to that particular system and protect it from the risks they actually face. This provides better—and real—protection for franchisees and the franchisors than off-the-shelf insurance policies like business owner policies (commonly called BOPs). Sadly, many find out that a claim is not covered under their policy after making a claim, when it’s too late.
To accomplish this, it’s important to gain an in-depth understanding of current insurance coverage, including a full read of policy definitions and exclusions. Too often, franchise businesses end up with policies that exclude protections for very real possible claims. To illustrate, here are a few examples we’ve uncovered, over the past year alone, in standard General Liability or Business Owner policies that were purchased on price alone:
- Improvements and Betterments: Many standard business owner policies (BOPs) will not cover improvements and betterments to your business unless they were completed by you. This could be a real problem since there are many franchise transfers and store upgrades that take place before a sale. Let’s say you are affected by fire, smoke or water damage as a result of damage to another tenant in your center. If you have this “standard” BOP policy, you may not have coverage if you purchased an existing franchise that had improvements done before your purchase.
- Off Premises Coverage: Standard general liability policies often will not cover you if you perform a service or offering that you do mostly at one location at any other location.
- Host Liquor Coverage: Many policies don’t provide coverage for events at your business where where beer or alcohol is allowed. (This coverage is different from liquor liability coverage).
These are just three examples of exclusions and limitations common in a standard general liability policy. Now think about the risk and moving parts in your franchise system. What if they are more involved than the simple examples above? Simply shopping on price alone may not protect the balance sheet and assets of your business.
Price is important, there is no doubt about it, but the best priced policy is worthless if you don’t have the insurance protection you need. A well-structured franchise business insurance program protects the brand and safeguards against real potential risks. Be sure to compare policies and programs on an apples-to-apples basis rather than on price alone.