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How a Franchise Insurance Program Benefits Your Franchise System


As a franchisor, you have invested heavily to build the brand of your franchise system. You take great care to select franchisees that will adhere to your standards to protect your standards and reputation. Your franchise system’s value is further enhanced when your franchisees are properly and consistently insured with a franchise insurance program tailored specifically to your needs and the needs of your franchisees.

We will discuss the two primary insurance challenges faced by franchisors:

We will then discuss how a customized franchise insurance program will benefit both your franchise system and your franchisees:

The Challenge of Proper and Consistent Franchisee Insurance Coverage

Many franchisors leave the responsibility of securing insurance coverage to the individual franchisee. The majority of franchisees choose to work with their local insurance agent, and they may not realize that these agencies have no experience working with franchise concepts. The policy they can obtain for your franchisee may be inadequate. The result is inconsistent insurance coverage that might not comply with your standards and insurance requirements. This introduces the following risks to your franchise system:

  • Coverage gaps and exclusions leading to claims denials, damaging your brand and reputation
  • Poor insurer financial stability results in failure to pay claims, damaging your brand and reputation
  • Poor claims handling results in damage to your brand and reputation
  • Lack of Additional Insured protection available to the franchisor
  • Vicarious liability for the franchisor due to franchisee coverage inadequacy

As an example, we discovered in working with a new franchisor client that many of their franchisees had acquired General Liability policies excluding Products Liability, in an effort to save money. Not only was this in violation of the insurance requirements of the franchisor as stipulated in their FDD, it exposed the franchisor to vicarious liability and reputation damage in the event of a claim.

The Challenge of Franchisee Insurance Compliance

Franchisors should take advantage of the enhanced protection afforded to them by verifying that each of the franchisees names the franchisor as an Additional Insured on the franchisee’s insurance policy. This practice not only provides protection for the franchisor, but obligates the franchisee’s insurer to notify the franchisee of any policy cancellation or non-renewal. However, continuously ensuring insurance compliance is a challenging, time-consuming, and costly process. It is common for franchisors to require a staff dedicated to tracking insurance compliance. In developing new franchise insurance programs, we have found that franchisee insurance records are not always current, and many franchisees fail to add the franchisor as Additional Insured to their policies, exposing the franchisor to possible claims and limiting the protection readily available to the franchisor under the franchisee’s insurance policy. Additionally, franchisee insurance policy may cancel without the knowledge of the franchisor.

Benefits of a Franchise Insurance Program

Proper and Consistent Insurance Coverage for Franchisees

The foundation of a successful franchise insurance program is assuring that each of your franchisees has insurance coverage (subject to individual state requirements) that complies strictly with your FDD insurance requirements. In most cases this requires a regional or nationwide insurer, and an insurance advisor that is licensed in all states your franchises are located in.

We evaluate prospective insurers for your franchise insurance program with the following criteria:

  • Cost of coverage to franchisees
  • Confirm that coverage addresses your franchisees’ loss exposure and your insurance requirements
  • Confirm insurer geographic availability to all franchisees
  • Evaluate insurer financial strength and claims-paying ability
  • Evaluate insurer claims-handling customer satisfaction and reputation
  • Address coverage enhancements specific to your industry
  • Confirm availability of Additional Insured status for franchisor

Evaluation of Insurance Requirements

The insurance requirements of your franchise system should address any coverage that will protect your brand and reputation. For example, Cyber Liability and Data Breach is an emerging threat to businesses that has enormous implications for damage to your franchise reputation. When a franchisee experiences a theft of customer data, it is your franchise name that becomes headline news! Many franchise insurance requirements have not addressed this threat. Not only do we structure your franchise insurance program around your current insurance requirements, we review and assess the availability of coverage to address any risks that might not be included in your requirements.

Franchisee Insurance Compliance Tracking

Using our proprietary compliance tracking automation, we track insurance compliance for all franchisees. This provides the following benefits:

  • Franchisees have the proper insurance coverage as required by your FDD and insurance requirements
  • Franchisees have named the franchisor as Additional Insured to their insurance policy
  • The franchisor is immediately notified of a cancellation or non-renewal of the franchisee’s insurance policy

Our compliance tracking frees your staff to focus on growing your franchise while assuring that proper protection is in place.

Group Buying Power

Franchisee insurance policies acquired individually do not benefit from large group buying power. Just as your franchise leverages group buying power with other suppliers and vendors, you can obtain coverage enhancement and cost savings with a franchise insurance program.

Loss Prevention and Risk Management

When a franchise insurance program is fully utilized by your franchisees, trends emerge. If insurance claims occur, the circumstances that resulted in the claim can be analyzed to prevent other franchisees from experiencing those same claims. Using the insurance industry’s resources to prevent and mitigate claims and losses, our team of loss control consultants can assess your franchisees’ operations to improve safety, prevent employee injuries, and reduce claims and losses. As this data develops, it can be incorporated into your franchise standard operating procedures. Increased safety and reduced claims will directly and indirectly increase your franchisees’ profitability.

To communicate loss prevention and mitigation strategies to your franchisees, we conduct webinars, seminar, and conference presentations, as well as publishing a quarterly newsletter for franchisees discussing these strategies.

Is My Franchise System Too Small for a Franchise Insurance Program?

Regardless of growth stage or number of franchisees, your franchise system can benefit from a franchise insurance program. We have worked with emerging growth franchise systems with fewer than 50 franchisees to develop a customized franchise insurance program.

How to Get Started with a Franchise Insurance Program?

Contact us to discuss a customized franchise insurance program for your franchise system.


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