The Importance of Insurance During a Franchise Crisis

It’s often said that insurance is protection for a rainy day — and in today’s economic climate, following the coronavirus crisis, both franchisees and franchisors are experiencing a heavy downpour.

Not only is having the proper insurance policies in place critical for franchisees in situations like these, it’s also important for franchisees to understand what they need to do with their coverage in the midst of a crisis. 

1851 Franchise sat down with Doug Groves, president of certificate-tracking company EZCERT Management, to review the role that five different types of coverage play during a crisis and what franchisees (and the brands) behind them need to consider as they review their policies.

Property Insurance

For franchisees that have brick-and-mortar locations, it’s more important than ever before to ensure that your property insurance is up to date.

“It’s important to keep this because, number one, you might have a lien on property. A lender wants their interest protected if they loaned you money to have that property,” said Groves. “Plus, if there’s nobody at work, the change of having your property vandalized goes up exponentially because there’s no one there to protect it.”

Liability Insurance

Because liability insurance is based on sales, franchisees should look into reducing the way their premium is calculated rather than dropping their coverage or policies.

Groves said, “If you thought you’d do $1 million in gross sales, make sure you’re working with your insurance agent to reduce that depending on how long you’re gone. Your insurance agent needs to know that your premium will be going down.”

Employment Practices Liability Insurance

According to Groves, this type of insurance will be most important to franchisees who need to lay off or terminate employees.

“If you’re changing your hiring or firing practices right now, and if you get sued, you want this coverage to defend you. I’d hate to be without this right now,” said Groves.

Workers’ Compensation

Similar to employment practices liability insurance, workers’ compensation is a payroll-based insurance. And depending on how many employees franchisees have working for them right now, this is another policy that may need to be reevaluated.

According to Groves, “If you paid $100,000 in payroll this month, and that’s what your insurance company is expecting for the next year, you need to tell your agent if that number is going to drop to $50,000 next month. If that’s the case, your workers’ compensation should be cut in half.”

“It’s the same idea of keeping the coverage in place,” he continued. “That will help you save money monthly by reducing your payments but still give you the coverage you need. You want to be paing the appropriate amount of premium.”

Automobile Insurance

For franchisees who own restaurant concepts that have employees delivering food right now, automobile insurance plays a crucial role. 

“For a lot of restaurants, the only way that they’re staying open is through delivery. That’s why automobile insurance is like gold now — you need to have that coverage for employees who are driving their personal cars to deliver food,” said Groves. 

If restaurants are without or hesitant to take on this cost, Groves argues that now is the ideal time to consider partnering with a third-party delivery company.

As Groves explained, “A lot of restaurants shy away from third-party delivery services because of a cost problem. However, I highly recommend engaging a third-party delivery service because it comes with insurance and a driver. They might take a percentage of your ticket, but they also take on a large percentage of your insurance coverage.”

Ultimately, in times like these, franchisees need to reevaluate the coverages that they have in place. Now is also a good time for franchisors to offer support and guidance on insurance compliance and best practices. 

“To come out on the other side, keep your franchisees involved, give them a plan and do not write off some solution you have never seen work,” said Groves. “You must communicate — and please document any actions you’re taking to salvage your business.”