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When you start a franchise, you don&rsquo;t get into the business to do insurance. Franchisors are experts in their brand and in their process and insurance is something that comes along for the ride. That&rsquo;s where <a href="https://www.certmgmt.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=business-insurance-i-told-you-sos-2705532" target="_blank" rel="nofollow" target="_blank">EZ CERT</a> comes in. <a href="https://ezcertmgmt.1851franchise.com/info/index.html?utm_source=1851franchise.com&utm_medium=article&utm_campaign=business-insurance-i-told-you-sos-2705532" target="_blank" rel="nofollow" target="_blank">EZ CERT </a>understands the dynamic relationship between franchisor and franchisee and works with franchisors across the country by offering a proactive approach to insurance compliance.

As a franchisor, you know complete insurance requirements are expected to be listed in your <a href="https://1851franchise.com/details/2705192/What-is-an-FDD-" target="_blank">Franchise Disclosure Document</a> (FDD), but did you know a simple wording error or monitoring mistake can put you and your franchisees at risk? So how do you avoid common insurance mistakes in order to keep your company safe? <a href="https://1851franchise.com/" target="_blank">1851 Franchise</a> spoke with Doug Groves, principal of EZ CERT, to discuss common insurance mistakes franchisors make that could cost big money.

Make sure you have a good attorney who understands franchises, writes FDDs and is well versed in your industry. 

An unprepared attorney means an unprepared FDD. It&rsquo;s easy to let your friend or associate act as your attorney in some instances, but when it comes to writing your FDD, it&rsquo;s time to bring in an expert. Groves shared that often sees FDDs written by attorneys that don&rsquo;t have a full understanding of franchising or the business of the franchisor. &ldquo;Not only should your attorney know about the franchising industry, but they should also understand the type of business you are going into. If they have never worked in the restaurant business, there&rsquo;s no guarantee they will be prepared for the types of legal issues a business in the industry may face such as age discrimination or sexual assault.&rdquo; Once your business beings to grow, it&rsquo;s inevitable issues will arise, so it&rsquo;s important to be aware of these issues from the start so nothing comes as a surprise.&nbsp;

Make sure you address all areas of risk the franchisee might come across.

Item 3 in the FDD requires franchisors to list all litigation that they have been involved in over the last 10 years. As a franchisor, you should list when the litigation occurred, who originally filed the litigation and the outcome of the case.

According to Groves, this is an important place to be very open and honest with your new franchisees. &ldquo;A lot of franchisors try to hold costs down. I recommend that the franchisor be perfectly honest with the franchisees and tell them the issues that have come up in the past.&rdquo; He continued, &ldquo;I have seen situations with brands where they think that certain litigation wasn&rsquo;t a big enough issue to list in the FDD, but the issue continues to arise and a new franchisee gets sued, then gets mad at the brand because the issue wasn&rsquo;t listed.&rdquo;

Be honest, do not hope for the best.

Items 6 and 7 in the FDD require franchisors to list all of the upfront and expected costs of running a franchise. Groves sees a lot of franchisors try to minimize these costs in an effort to sell more franchises, but says that&rsquo;s not the way to go. &ldquo;Hoping you don&rsquo;t get sued is a bad plan. Once you begin opening multiple franchisors you&rsquo;re going to have some guys that you shouldn&#39;t be in business with, you have to prepare for that.&rdquo;

Be clear and concise in what you expect the franchisee to cover.

Be sure your FDD is written in layman&#39;s terms. It is common for franchisors to be sued over language issues in the FDD, so wording choice is imperative. Franchisee expectations have to be laid out very clearly and couched in a manner that they understand so they are not able to place different meanings on expectations. Groves recommends, &ldquo;Ask a neighbor, your mother, any outside source to take a look over your FDD. You want someone not involved in the business to be able to understand exactly what you&rsquo;re asking for. If they can understand it, everybody else should too.&rdquo;

Make sure you track and hold fast to your requirements and additional insured language is correct.

If you are the franchisor, you want your franchisee to buy insurance, but you want to be listed as <a href="https://ezcertmgmt.1851franchise.com/details/2703805/Additional-Insured-Endorsements-Why-Your-Franchise-Should-Require-It?utm_source=1851franchise.com&utm_medium=article&utm_campaign=business-insurance-i-told-you-sos-2705532" target="_blank" rel="nofollow" target="_blank">additional insured</a> on those policies. Doing so will grant you rights under the policy which could include the right to defense and the right to be indemnified from a loss for a covered claim. In order to keep track of all of these new claims, franchisors can utilize a system like <a href="https://ezcertmgmt.1851franchise.com/info/index.html?utm_source=1851franchise.com&utm_medium=article&utm_campaign=business-insurance-i-told-you-sos-2705532" target="_blank" rel="nofollow" target="_blank">EZ CERT</a> to oversee store insurance requirements.

Groves explained, &ldquo;You know that your franchisee had insurance when they bought the franchise, but do they still have it in the 3rd year? Has your franchisee changed insurance providers? You have to have a system that stays on top of your franchisees on an annual basis to ensure they are up to date with these insurance requirements. As you get more locations, you could have as many as 2000 certificates coming through your door each year. You need a system to maintain those certificates, and that&rsquo;s where EZ CERT comes in. EZ CERT keeps tracks of these certificates and manages your franchisee&#39;s insurance requirement so you can focus on building your business.&rdquo;

Remember insurance renews each year and payments must be made or it will be canceled.

It takes a lot of internal time and money to keep up with all of the insurance renewals and payments. Insurance isn&rsquo;t required to notify the additional insured, therefore even if you are listed there is no guarantee you will be notified if insurances expire or change. If you do not have internal staff looking over these regulations, you might not find out a franchise isn&rsquo;t insured until it is too late. <a href="https://www.certmgmt.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=business-insurance-i-told-you-sos-2705532" target="_blank" rel="nofollow" target="_blank">EZ CERT </a>can handle monitoring all of the insurance renewals and payments so you can focus on your brand.

As a franchisor, it&rsquo;s important to remember upfront insurance monitoring costs can really pay off in the long run. Groves shared, &ldquo;No franchise ever goes out of business because of insurance, but you can go out of business because you have the wrong insurance. Typically 1-3% of your budget is going to be allocated to your insurance costs, it&rsquo;s not going to drive you out of business.&rdquo; So it&rsquo;s important to spend the money upfront, so you don&rsquo;t get in trouble later.

&nbsp;

Business Insurance "I Told You So's" 

1851 Franchise

6 Mistakes Franchise Brands Could Have Avoided with Proper Insurance Compliance Programs.

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