Providing the essentials of insurance cover across franchising
No amount of insurance can protect you if it’s the wrong type. That’s why Hiscox and Moreland Insurance Brokers have developed an exclusive professional indemnity policy to suit the specific risks franchisors may face.
Franchising is one of the most effective ways to grow a business and the exponentially increasing number of franchises in the UK illustrates just how keenly that is being appreciated, reports Maurice Logie, Moreland Insurance Brokers.
For franchisees, the model creates an unrivalled opportunity to get in on the ground floor of an established business and make the most of offering goods and services which it has already been proved that people want.
Part of the secret of success for both franchisors and franchisees is the ability to look ahead and identify potential problems and pitfalls before they arise and put checks and balances in place to deal with them.
However, there will always be unforeseen circumstances that have the ability to derail the best laid plans, and that part of being forward thinking is to cover yourself by taking advice from a professional insurance broker.
Insurance these days is complex and the requirements for a business vary from compulsory elements to policies which are simply very advisable, with a huge range in between. Here are the top ten things you should know to help you make sure you are correctly covered.
In the UK, motor and employer’s liability are the two compulsory forms of business insurance. Employer’s liability is required to protect an employer’s legal liability for injury to employees. This can include volunteers and also contingent liability for sub-contractors. Because of the variations in how risks may arise, care is needed in making sure that the correct cover is in place.
There are still a significant number of franchisors who either don’t have cover or, if they do, it may be inadequate. Proper PI insurance need not be expensive, but it will protect the franchisor from civil liability claims (awards and expenses). It should be taken out by the national master, international, or regional franchisors.
This is not compulsory in the UK, but it is highly advisable – the risks protected relate to third party injury or damage cover.
This occurs regularly within franchise networks. The term means that the primary cover lies elsewhere. For instance, if you are dealing with a panel of contractors, who are carrying out manual work or, indeed, any other business activity, they should have their own insurance cover. However, if their cover is cancelled or for some reason doesn’t operate, the risk may flow up to the principal. This can affect both franchisors and franchisees and again needs expert attention.
Some franchise networks will allow franchisees to arrange their own vehicle insurance. The dangers here are as follows:
Internet quote sites are classed as a “non-advised sale” and must be treated with caution for business insurance purposes. We have come across franchisees who mistakenly think, for instance, that a van policy covers their tools and equipment.
Commercial car insurance with the wrong class of use can mean that, technically, there is no cover.
A fleet policy may prove beneficial as it will enable the franchisor to control the risk. For instance, ensuring proper business use, no young drivers and making sure that additions and equipment on the vehicle are properly covered.
We are increasingly being asked to use the buying power of a franchise in the insurance market. Typically, you can save up to 20 per cent in premiums this way. Equally importantly, you can ensure contract certainty – that is, the same cover applies across the brand, so there are no gaps or nasty surprises.
Risk specific solutions
Franchising is by nature a very diverse arena and so the insurance risk solutions we come up with will vary according to the client’s needs. At Moreland’s, we have access to all major UK insurers and, as part of the Willis Network, we can tap into the resources of one of the world’s biggest brokers. We work with the Willis Affinity Team and can tap into its expertise as it is applied to the franchise sector.
Like the franchise manual and agreement, your insurance arrangements need to be checked regularly. There are a number of reasons for carrying out this exercise and it is something we would do as an insurance broker. A review will pick up any changes in legislation, your business activities, new risks identified, and any claims experience issues that need to be addressed.
This is a common method of managing the insurance needs across a franchise network. One policy is issued, with the franchisees getting individual certificates.
Franchisors are increasingly using the internet to deliver all kinds of management information across their network and insurance is no exception, thus creating a ‘paperless environment’. Commercial insurance products and services can be delivered in whatever manner the franchisor requires.
In the light of the above, here are some recent case studies with practical examples of how a professional insurance broker can make a meaningful difference to your business risks.
Franchise with over 80 franchisees
Problem: This franchise was very successful but it had grown without putting in place an insurance scheme. The franchisor had been too busy growing his business and, although he had a recommendation for his franchisees, he had no way of knowing if they took it up or not.
Solution: When we started to investigate, we found wide variations in cover and in some cases substantial misunderstandings among franchisees about the cover they had to put in place.
We were able to manage the whole process on behalf of the franchisor, establish uniformity of cover and also handle the insurance demands of new franchisees as they joined the network.
Small franchise involving visiting private homes
Problem: Some franchisees assumed that the franchisor had insurance to cover them. This was not the case.
Solution: Immediate action had to be taken by us to rectify the situation. This business involved visiting private homes and carrying out some procedures as well as the need for some product liability cover. In this instance, arranging the correct cover was not expensive but, in the event of a claim, it would almost certainly not have been paid.
In another instance, we found that the insurance pricing within a network was competitive, but one key element of income relied upon by the franchisees was not covered. We were able to plug this gap at the same premium – so all parties were happy.
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