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Insurance Practices to Assist Your Business

Your franchise system’s investment in training, superior products, differentiated services and, most importantly, franchisee selection, can have a huge impact on business insurance costs for your franchisees.

Every premium dollar saved enhances a franchisee’s bottom line and fosters future growth. Insurance savings from a well-constructed insurance program can enhance franchisee profit margins up to 2 percent to 3 percent. The investment in better insurance coverage is immeasurable both in cost and system-wide reputation.

Consider what differentiates your franchise business from your competitors when designing insurance coverage and negotiating price on behalf of your franchise system.

  • These considerations might include:
  • What is your company mission or code of values?
  • What kind of uniforms does a service technician wear?
  • What standards are maintained for the appearance of vehicles?
  • What background requirements are required in your system?
  • What is the quality of products that are utilized?
  • How often are franchise audits conducted?

These are just a few best practices which make franchising unique. Yet, when your franchisees elect to purchase insurance on their own, they are placed into relatively heterogeneous groups. Essentially, those franchisees are pooled with the “good” and “bad” practices in your industry. The consistent level of quality control and uniformity throughout your franchise system is a cardinal advantage in your business model.  Use it to your advantage when negotiating an insurance program.

According to Brian Scudamore, CFE, CEO of 1-800-GOT-JUNK?, “There are companies out there hauling junk, they just don’t do it like we do. Our uniformed drivers show up in their shiny trucks at a scheduled time, with a standardized price sheet in hand. The level of professionalism that we have adopted is what differentiates us from the competition.”

1-800-GOT-JUNK? utilized its system to achieve a unified and competitive insurance program for their franchisees. They are paying much less than your average “Junk Haulers”, as well they should.

Where do your franchisees place when looking for business insurance on pricing and coverage? Rejected, substandard, standard or preferred?

By its very nature, insurance underwriting is discriminatory. To effectively select and price accounts, underwriters must be able to differentiate between good and bad risks.  These underwriting decisions can be influenced by an underwriter’s negative experience with your industry sector.  Well-communicated franchise system standards allow your franchisees to distinguish themselves from the less uniform non-franchisee sector, thereby enhancing the likelihood of preferred insurance pricing and coverage.

What can franchisors do to help a franchise system in securing insurance?

Look to insurance brokers specializing in franchise business insurance programs. These brokers will solicit the information that an insurance underwriter will require to positively evaluate your system. In addition, these specialized franchise insurance brokers can prospectively anticipate coverage issues and objections that may arise.

Share your brand standards, including appropriate information from your operations manuals. Clearly describe the benefits and features of your product or service. Underwriters want to see and hear evidence of a firm’s risk management best practices

After the selection process, ask your broker to work with one, and no more than two different insurance carriers to leverage your system for long-term pricing and coverage advantages.

Realizing the importance of an investment in developing risk management standards, Jeff Platt, CEO of Sky Zone Indoor Trampoline Park, indicates, “As a leader in our industry, we are working diligently to put the foundation in place for Trampoline Park Risk Management Manuals and Certification Programs. As a franchise company, we are able to invest significant resources into training and document retention systems to mitigate insurance costs leading to more favorable rates. Currently, we are in the process of grouping all of our locations together to provide more consistent coverage and better management of our entire insurance program.”

What advantages can franchise companies expect to receive?

Help your franchisee meet FDD insurance requirements.

Control coverage and additional insured language to protect against vicarious liability allegations.

Eliminating diverse views on claims and coverage interpretation.

Reduce risk to your system as it grows.

Find the most suitable coverage in the insurance marketplace.

Insurance brokers who specialize in franchising can help.

Franchisors implement best practices in risk management. They can share how similarly situated systems (without divulging confidence) to handle compliance and particular coverage issues.

Ted Hofer, CFE, CEO of Spring-Green Lawn Care, has a negotiated insurance program for his franchise system. The majority of owners enjoy the price, coverage and service it offers. Hofer states, “Managing insurance compliance becomes a simple process when owners are insured in a single source. We do not have to wonder if proper coverage is afforded in the challenging area of environmental liability issues.”

Rosemarie Hartnett, CFE, president of Abrakadoodle indicates, “As our franchise owner’s work with children, our partnership with a franchise insurance specialist ensures our franchisees receive consistent and proper coverage. Our insurance partner recognizes the importance of the coverage and the advantages of providing coverage for Abrakadoodle franchise owners.

Tis the Season to Start Gift Wrapping  

The best present for your system may be working with a broker that specializes in franchise insurance to develop an RFP to insurance companies which includes all that your system has to offer. Taking the time to carefully wrap or package your system’s unique culture and controls will show the worth of what is inside your franchise company.  It’s all about the presentation. ⎯

Janice M. Dwyer, CFE, is president of the franchise division of Luce, Smith & Scott Insurance, an insurance broker representing 54 different franchise brands in the administration of property and casualty insurance programs. Dwyer is a member of the International Franchise Association’s Franchise Relations Committee and VetFran Committee.  She can be reached at 440-746-9110 or jmdwyer@lucesmithscott.com. 

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