Do franchisees need business insurance?

Chris Little
Franchise director, Premierline Direct

 

A: Insurance is essential for any franchise, and it can often be tailored to the specific type of business such as pubs, restaurants and retailers.

Employer's liability is a legal requirement for any business that employs staff, even if they're temporary or on work experience. It covers legal costs and awarded damages if the business is found to be legally responsible for an employee being injured or contracting a disease while working.

Public and products liability protects businesses in the event of the public being injured or their property damaged, or for damage or injury caused by defects in the business's products. This is invaluable when the business provides a service or goods to the public.

Business contents covers the cost of replacing or repairing trade contents and stock in the event of an incident such as a fire, malicious damage or theft. However, it's important to take security precautions as most insurers will require a minimum level of security, such as a certain type of alarm and locks on external doors. Failure to comply with these requirements can invalidate the policy.

Business interruption covers a business for loss of income as a result of an insured event such as a fire or flood. Statistics show seven out of 10 small firms would go out of business if they experienced a major emergency.

There are various channels available for purchasing business insurance. Businesses that buy direct can ensure the insurance company is provided with accurate information about their firm. Perhaps most importantly, going direct may mean a business can get a better deal.

 

Élise Billy
Principal solicitor, EXB Legal

A:  Most franchise agreements require the franchisee to take out insurance. Some set out the minimum levels of insurance and the types of insurance required, others will be more general. Many franchisors require their interests to be noted on your insurance policies (the franchise department at the insurers should be familiar with this) and may require copies of the policies and proof of premiums having been paid. It will often be a breach of your franchise agreement (which can ultimately lead to termination) not to obtain and maintain the minimum insurance levels.

The types of insurance required will vary by franchise and business type, but will often include insurances such as public liability, professional indemnity (if applicable), employers’ liability, product liability and so on. Most of the insurance would be prudent for a business owner even if not required by the franchise agreement, so although a franchisee may be tempted to regard the insurance as unnecessary, this could be regretted in a claim situation. 

Some franchisors will offer access to a group policy, or will insist on a particular insurer being used. Others will allow a franchisee to select their own insurer, but may have useful suggestions. This should be checked with the franchisor and in the franchise agreement.