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2013-04-24T15:15:24+10:00
How to... | Insurance
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IN CASE Image: Thinkstock
Find out here what you need to know about insurance as a new franchisee
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ou’ve chosen your franchise, picked a location, planned your training times. But what about insurance? Neglecting to get the most appropriate cover for your business could prove expensive. Let’s be honest, investigating and investing in business insurance is not the most exciting part of becoming a franchisee. There are far more compelling activities that demand attention as new franchisees set up in business. However, although taking a shortcut and signing up for the bare minimum insurance cover might seem like a cost effective strategy in the early days when your bank account seems to be haemorrhaging money, it could lead your business to financial difficulty if your ability to trade is compromised. Almost all franchisors have compliance requirements for franchisees to have insurance, explains Darryl Morris, director at National Franchise Insurance Brokers. Compliance is different with each group but the minimum requirement is for public liability cover, whether the business is retail, or non-retail. For retail franchisees the landlord will most likely dictate the amount, usually $20 million, says Morris. Non-retail businesses without a tenancy will be looking at an amount closer to $10 million, he suggests. For retail operators, the franchisor will have recommended levels of cover, but in most cases only public liability is compulsory. Morris is adamant there should be other insurance listed as necessary cover. “It’s a failing in the system that franchisors don’t make business interruption
116| franChising may/Jun 2013
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insurance compulsory for retail franchisees,” he says, as much for the franchisor’s own benefit as the franchisees. The cover is designed to protect lost gross trade if the franchisee is unable to operate. It benefits the franchisee who without an income can still manage financial commitments - loans, rents, and living expenses, and of course royalties. A franchisor is likely to be missing out on royalty payments when an uninsured franchisee is not trading.
help for franChisees In many cases a new franchisee buying into a network will have a recommended supplier to contact for insurance - a company that knows the business and what level of insurance is preferred; the business might have a pre-determined package that will tick the boxes. However, the franchisor cannot insist that a franchisee work with a recommended supplier; a franchisee can arrange insurance with whichever company they choose, so long as the cover is compliant. The disclosure document outlines the insurance requirements, and franchisees are then required to provide a certificate of insurance to the franchisor to show compliance.
what types of Cover might you need? Morris highlights eight distinct insurance options as important for any tenancy-based business (and some of them are equally important for mobile or service