How Do Franchises Insure Franchisees?

According to Navion Insurance Associates, it is important to create detailed insurance information within a Franchise Disclosure Document for all franchisees to know their coverage as soon as they are onboarded. “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,” they said.

An FDD is where a brand is able to set insurance details in motion: By disclosing this information clearly and concisely, a brand is able to maintain a transparent business model where investors know what they are working with. Franchisees are able to commit early to this coverage, giving them peace of mind right away.

Franchisors can therefore make insurance easy for franchisees with a top-down approach — all the heavy lifting in this case is done on the franchisor side — but developing these larger-scale insurance policies takes a lot of corporate insight. 

Insurance management company SmartCompliance says there are multiple types of insurance for franchisors to consider. They list public liability insurance, worker’s safety, product liability, property and auto insurance. They also encourage transparency from a corporate office: “Franchisors need to outline what insurance is necessary for franchises depending on their business activities in their Franchise Disclosure Document,” they said.

Brands are forced to analyze their largest assets, the ways to cover any angle of business worth covering and how to market their coverage to franchisees that are looking for peace of mind when it comes to laying down some serious investment capital.

A top-down insurance model is one that can ensure a brand retains integrity throughout its entire system. Delegating insurance to independent franchises can cause havoc if some policies are far weaker than others. Brands can directly insure franchises from the moment they become an official unit, which is one way a brand can simplify complex business models far easier than independent businesses.

Related articles:

• The Importance of Insurance During a Franchise Crisis
• Is It Risky To Open a Franchise?
• What You Need to Know Before Taking Your Franchise into a New Country