FRANCHISE DISCLOSURE DOCUMENT REVIEW GUIDE

Why Reviewing Insurance in Franchise Agreements is Crucial for Franchisors

Ensuring franchisees meet the insurance requirements outlined in the Franchise Agreement is vital for safeguarding your brand, minimizing risk, and maintaining compliance across your network. Insurance is not just a box to check—it’s a critical layer of protection for franchise operations and your reputation as a franchisor.

Key Reasons to Prioritize Insurance Review:​
 

Protect Your Brand:

• Franchise Agreements often require specific insurance coverage (e.g., General Liability, Workers’ Compensation, Auto Insurance) with defined limits.

• Failure to enforce these requirements can expose your brand to reputational and financial risks if a franchisee faces claims or lawsuits.
   

Ensure Compliance:

• Non-compliance can lead to breaches of the agreement, penalties, or even franchise termination, creating unnecessary tension and operational challenges.
   

Mitigate Risk:

• Proper insurance shields against liabilities like property damage, employee injuries, and customer lawsuits, ensuring franchisees are prepared for unforeseen events.
   

Audit Preparedness:

• Proof of insurance is often required during audits or by insurance carriers. Consistent reviews ensure franchisees are prepared and compliant with documentation requirements.
   

Adapt to Change:

• Franchise insurance needs can evolve. Regular reviews help franchisees adjust to updated requirements and avoid gaps in coverage.
  
  
   

How Often Should Franchisors Facilitate Insurance Reviews?

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Before Agreement Signing:

• Work with franchisees to ensure insurance obligations are clear and achievable before the Franchise Agreement is finalized.
   

Annually:

• Recommend that franchisees review their policies each year to maintain alignment with agreement requirements and operational risks.
   

At Policy Renewal:

• Encourage franchisees to compare renewed policies with agreement terms to confirm compliance with limits and coverage types.
   

During Operational Changes:

• Major changes (e.g., adding services or locations) should trigger a review to confirm adequate coverage for the new risks.
   

When Updating Requirements:

• If your Franchise Agreement evolves, guide franchisees through necessary updates to avoid compliance issues.
   

Best Practices for Franchisors

Partner with Experts:

• Collaborate with insurance professionals who specialize in franchising to help your franchisees navigate complex coverage needs.
   

Document Everything:

• Maintain Certificates of Insurance (COIs) and other required documents to streamline audits and demonstrate compliance.
   

Proactively Address Risks:

• Anticipate changes in franchise operations and ensure franchisees adjust their policies accordingly.
   

By fostering a proactive approach to insurance compliance, you not only protect your franchisees from liability but also strengthen their trust in your leadership. Regular reviews create a robust foundation for a thriving franchise network by reinforcing the formal relationship of trust by helping them protect their investments.