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Everything You Need to Know About Franchise Insurance


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Owning and successfully running a small business or a franchise comes with many responsibilities—one of the most important is being properly insured. Securing the right franchise insurance is essential to risk management and protecting business interests.

It’s worth understanding why you need these types of coverage and which policies best serve your franchising venture.

In this blog post, we’ll provide an overview on franchise risk solutions, the types of franchise insurance policies available, and what insurance for franchises you should consider for your business.


What is Franchise Insurance? What Does it Cover?

Franchise insurance generally incorporates both franchisee insurance and franchisor insurance.



What’s the difference between franchisees and franchisors?

To put it simply, they are the two main parties involved in setting up a franchise system.

Franchisors are the original owners of the business model and brand who license these to individual franchisees, in exchange for an agreed-upon fee. Franchisees are the ones who operate these businesses using the franchisor’s logo and branding while also upholding their rules, practices, and procedures.


As a whole, franchise insurance is designed to protect franchisees and franchisors from the risks of owning and operating a franchise. Let’s review how franchise insurance can protect both parties.

There isn’t a one-size-fits-all insurance policy—franchises span all sorts of industries and products and services. Rather, franchisors work with insurers to come up with a plan that fits specific use cases.

There are several standard franchisor program insurance policies for you to consider:

  • General liability insurance (also known as business liability insurance) covers against bodily injury, property damage, reputational harm, and advertising injury claims.
  • Franchisor E&O insurance (error and omissions insurance, also known as franchisor liability insurance) protects the franchisor from claims of negligence or services not provided as stated in the franchise agreement.
  • Workers’ compensation covers against claims from employees who get injured on the job.
  • Property insurance covers your business’s physical building and equipment against damage.
  • Commercial auto liability covers against damage to the vehicle and liability for accidents involving cars, trucks, or vans used for business purposes.
  • Product liability covers your business against damages resulting from faulty goods purchased.
  • D&O (Directors and Officers) insurance covers directors, officers, and managers from claims that result from mistakes while managing the business.
  • Cybersecurity insurance covers your businesses against incidents including data breaches, hacking, and cyber attacks.

The above list shows some franchise insurance programs, but is by no means exhaustive. We recommend working with an insurance broker to create the best franchisor system package insurance for your business.


franchisee insurance


What Are the Risks of Not Having Franchise Insurance?

Not having insurance for a franchise carries serious risks. Not having the proper legal and financial protections can leave business owners like you open to liability and expose you to major financial losses if an incident occurs. This could result in damages, injury, or a lawsuit. Furthermore, not being insured could put the entire brand in jeopardy.

For example, if an accident occurs on the premises of a franchise location, franchisees as well as the franchisor may be held liable for damages. (The act of holding one party liable for the actions of another is called vicarious liability.) Franchise insurance is a critical tool you can use to protect your business.

A franchisor may be able to dictate how much insurance will be or what package is the best fit for their business, but as a whole, there are minimum insurance requirements in place for risk management.

For example, without insurance you can open yourself up to risks, such as:

  1. Legal liability: Without franchise insurance, the franchisor and franchisee may be held legally responsible for any damages or injuries that occur on their premises or as a result of their products or services. This can result in expensive lawsuits and settlements.
  2. Business interruption: If the franchise experiences an unexpected event such as a natural disaster, without proper insurance coverage, the business may suffer significant financial losses, resulting in business interruption or even closure.
  3. Loss of assets: Without adequate insurance coverage, the franchise may face financial loss due to damage or theft of property or equipment. This can impact the financial stability and continuity of the business.
  4. Reputational damage: In the event of a lawsuit or any other unexpected event, the franchise’s reputation may be damaged, leading to a loss of customers and revenue.
  5. Non-compliance penalties: Many franchisors require their franchisees to carry specific types and amounts of insurance coverage. If a franchisee fails to comply with these requirements, they may face penalties, fines, or even termination of their franchise agreement.


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How Franchise Insurance Works

Franchise insurance is designed to protect both franchisors and franchisees from potential legal action or financial loss. This kind of insurance provides coverage for issues that arise from economic and market forces, accidents, and natural events.

Your specific coverage and policies may vary depending on franchisors and the nature of franchise businesses, but here’s how insurance for franchises typically works:

  1. Assessing the risks: Particularly if you’re not familiar with franchise insurance programs, you should work with an insurance broker to assess the risks involved in operating your particular franchise business. They’ll be most familiar with the intricacies of running a franchise.
  2. Establish the likelihood of each risk occurring: During this step, the brand should analyze the likelihood of each risk occurring. This step is useful for understanding the penalties or damages that would occur in a worst-case scenario.
  3. Selecting the coverage: Based on the risks identified, the insurance broker recommends specific insurance coverage and policies.
  4. Purchasing the policy: Once the coverage and policies are selected, the franchisee purchases the insurance policy and pays the premiums. The franchisor may require the franchisee to provide a certificate of insurance before the franchisee can open their business.
  5. Making claims: In the event of an unexpected event, such as property damage or a liability claim, the franchisee may file a claim with the insurance company. The insurance company will then investigate the claim and determine if it is covered by the policy. If the claim is covered, the insurance company will provide compensation to the franchisee.

Overall, franchise insurance provides protection and peace of mind to both franchisors and franchisees by mitigating the risks associated with operating a franchise business.


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Factors Involved in Franchise Insurance

There are several factors in franchise insurance programs that determine what policy is the best fit for you, including:

  1. Business type: The type of franchise business will impact the insurance needs. For example, a restaurant franchise will have different insurance needs compared to a retail franchise.
  2. Franchise agreement: The franchise agreement may require specific types of insurance coverage, such as general liability or workers’ compensation insurance.
  3. Location: The location of the franchise will also impact insurance needs. Certain areas may be more prone to natural disasters or crime, which may require additional coverage.
  4. Business size: The size of the franchise business will also play a role in determining insurance needs. Larger businesses may require more coverage and higher policy limits.
  5. Insurance history: The franchisee’s insurance history, including any claims or losses, may impact the cost and availability of insurance coverage.
  6. Regulatory requirements: Certain states or industries may have regulatory requirements for insurance coverage, such as minimum liability limits.
  7. Franchisor requirements: Some franchisors may have specific insurance requirements that franchisees must meet in order to maintain their franchise agreement.


franchisor program insurance


Types of Franchise Insurance You Might Need

While there’s not just one franchise business insurance policy that fits all franchises, there are a handful that are generally a good idea to have. Here are some common franchise insurance examples:

  1. General liability: This policy protects franchise owners against liability from bodily injury, property damage, advertising injuries, or personal injuries.
  2. Property insurance: This insurance covers buildings and what’s inside those buildings.
  3. Workers’ compensation insurance: This protects employers from liability if their employees get injured on the job.
  4. Umbrella insurance: As the name suggests, umbrella insurance can provide additional insurance coverage outside of what other policies don’t include.
  5. Franchisors’ malpractice insurance (also known as E&O insurance): This policy can protect a franchisor against claims of breach of contract or services not fulfilled.
  6. Directors and Officers liability (also known as D&O insurance): This insurance protects the personal assets of the franchisor’s managers and directors against claims of mismanagement.
  7. Cyber insurance: This type of insurance coverage is recommended in today’s increasingly complex digital environment. It covers the cost of notifying customers, credit monitoring, legal fees and fines if data breaches, hacking, theft, and other digital attacks occur.

If you are asking yourself, “What insurance does a franchisor need”, the list above is a helpful starting point. We recommend working with both an insurance broker and legal counsel to make sure your insurance package fits your specific needs.


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Getting insurance for your franchise is a great way to protect against unforeseen circumstances. Another effective way to provide coverage for your business in unexpected scenarios is to look into small business loans or business lines of credit. While there’s only so much you can do to manage business risk, it’s important to know the options available.


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