Why is one insurance quote double the price of another for the exact same franchise?

The prevailing wisdom in franchise boardrooms is that insurance is a commodity—a fixed cost of doing business that should be shopped until the lowest number appears on the screen. When a franchisee in Utah compares their premium to a fellow operator in Florida, or when a franchisor looks at two competing proposals and sees a 50% price delta, the immediate instinct is to blame the broker or assume one carrier is "price gouging." This reflects a fundamental misunderstanding of how risk is priced, how coverage is structured, and how "paper compliance" differs from actual risk transfer. Why are you comparing a total premium number without first auditing the exposure base that generated it?

The tension lies in the gap between the insurance quote as a sales document and the insurance policy as a legal contract. In the rush to meet Brand Standards and "check the box" for an FDD requirement, operators frequently ignore the levers that drive cost: NCCI class code misallocation, aggressive "shaving" of payroll estimates, and the exclusion of silent risks like Hired and Non-Owned Auto or Employment Practices Liability. When an agent delivers a quote that is significantly cheaper, they haven't found a "secret discount"; they have likely modified the underlying data or limited the scope of the shield.

Operational drift is the silent killer of franchise insurance programs. You start as a residential cleaning franchise, but to juice margins, you start offering pressure washing or window cleaning above three stories. Your original policy was rated for "Interior Cleaning," yet you are now operating in a high-hazard class. The quote you are comparing doesn't reflect your actual operations—it reflects a sanitized version of them. This misalignment doesn't just create a gap in your coverage today; it sets off a chain reaction that eventually hits your P&L through massive audit back-payments, unrecoverable losses during a claim, and a damaged reputation with the very carriers you’ll need to rely on as you scale.

Below are the specific systemic failures and ripple effects that occur when insurance servicing falls behind the pace of your growth:

• Underestimated Payroll Triggers Year-End Audit Traps. Shaving payroll estimates to lower a quote is not a saving; it is an interest-free loan from the carrier that comes due as a massive, non-negotiable lump sum after the year-end audit.

  
  

• Geographic Rating Disparities Make National Cost Benchmarking Irrelevant. Comparing a Florida property rate to a Utah rate is a fool’s errand because CAT (Catastrophic) risk modeling for wind and hail dictates the math, not the broker’s "rate."

  
  

• Class Code Arbitrage Creates Denied Claims. Selecting a cheaper, less accurate NCCI code might pass a certificate of insurance (COI) review, but it gives the carrier a "misrepresentation" lever to pull when a claim actually occurs.

  
  

• A "Total Premium" Comparison Often Hides a Policy Deficit. A quote that looks 30% cheaper often achieves that price by stripping out entire policies—like Workers' Comp or Cyber—that the other agent correctly included to protect the balance sheet.

  
  

• Carrier Blocking Prevents "Shopping" the Same Company. In commercial insurance, the first agent to submit your data "blocks" that carrier. You cannot get a second price from the same company without a formal Broker of Record (BOR) letter and a valid justification for changing the underlying exposure data.

Why does my buddy in a different state pay half of what I pay for the same brand?

Geographic location is the single most aggressive driver of insurance premiums, yet it is the most frequently ignored variable in franchise peer-to-peer comparisons. If you are operating a quick-service restaurant (QSR) in a coastal region of Florida, your property insurance is dictated by the Probable Maximum Loss (PML) associated with hurricane landfalls.

Meanwhile, an identical footprint in Utah is rated based on fire and moderate seismic risk.

According to the Insurance Information Institute (III), commercial property insurance rates in high-risk states have seen year-over-year increases of 20% to 50% due to reinsurance capacity tightening. When you compare your "bottom line" to another franchisee, you aren't comparing business efficiency; you are comparing the risk appetite of global reinsurers for specific GPS coordinates.

Furthermore, state-specific legal environments create massive variances in Workers' Compensation and General Liability costs. For instance, the National Council on Compensation Insurance (NCCI) regularly adjusts "loss costs" based on a state’s medical fee schedules and litigation climate. A "Loss Cost" is the portion of the rate used to cover claims and the costs of adjusting them. If California's state legislature increases temporary disability benefits, the direct result is an immediate spike in the pure premium for every franchisee in that state, regardless of their individual safety record. Comparing quotes across state lines without normalizing for state-mandated rate filings is an exercise in futility.

If the brand requirements are the same, how can the quotes be different?

A common misconception among franchisors is that because their "Minimum Insurance Requirements" are clearly defined in Item 15 of the FDD, all quotes meeting those requirements should be identical. This assumes that a Certificate of Insurance (COI) represents the totality of the coverage. It does not. A COI is a snapshot of limits; it says nothing about the exclusions tucked inside the 150-page policy form. One quote might be cheaper because it includes a "Hammer Clause" in a Professional Liability policy or a "Prior Work Exclusion" that effectively guts coverage for any projects started before the policy period.

The "Paperwork Shortcut" is where many low-cost quotes hide their deficiencies. An agent might meet the brand requirement for a $1,000,000 General Liability limit but include an "Action Over" exclusion. In states like New York, this exclusion is catastrophic. It means if an employee of a contractor gets hurt and sues the franchisee, the policy won't respond. The franchisor sees a COI that says "$1M," but the franchisee is actually uninsured for their greatest contractual risk. True risk transfer requires an alignment of the policy language with the franchise agreement’s indemnity clauses, not just matching the numbers on a summary sheet.

Why did the "cheaper" agent use different payroll and revenue numbers?

Insurance premiums for most franchise businesses are "auditable." This means the price you pay at the start of the year is merely a deposit based on an estimate of your Remuneration (Payroll) or Gross Sales. If Agent A quotes you based on $1,000,000 in payroll and Agent B quotes you based on $750,000, Agent B will always look cheaper on the proposal. However, the Experience Modification Rate (EMR) and the base rate per $100 of payroll remain the same.

This is a classic "operator's trap." By under-reporting exposure to win the business, the agent sets the franchisee up for a "Premium Audit" nightmare. At the end of the year, the carrier will review the actual 941 filings. If the payroll was actually $1M, the franchisee will receive a bill for the difference—often due in 30 days—while simultaneously being hit with an increased renewal deposit. This creates a cash flow crunch that can cripple a growing unit. When comparing quotes, you must audit the "Exposure Base." If the payroll numbers don't match your P&L, the quote isn't a "deal"—it's an accounting error waiting to happen.

Can I get multiple quotes from the same insurance company to find the best deal?

In the commercial insurance space, the idea of "shopping" the same carrier through multiple agents is a myth. Carriers utilize a system called Market Blocking. The first agent to submit your application to a carrier like Travelers or Hartford "owns" that submission for the year. If a second agent tries to quote you with the same carrier, the underwriter will simply reject it as a "duplicate."

This is why you cannot get different prices from the same company just by switching brokers. The carrier won't even let the second agent modify the application or change the rates without a significant justification, such as a major error in the original data and a signed Broker of Record (BOR) letter. Instead of trying to get the same company to give you two prices, you should focus on which broker has the deepest access to the specific carriers that understand your franchise model. You can read more about the systemic friction between brokers and carriers here.

Am I comparing the same protection, or just the same price?

Price comparisons often fail because the quotes aren't actually for the same set of policies. I have seen franchisees claim one quote is "cheaper" when it only covers Liability and Auto, while the competing quote includes Workers' Comp, EPLI, and Cyber. Even within a single policy, the  coverages vary wildly.

Take Employment Practices Liability Insurance (EPLI). A cheap policy might lack Third-Party Coverage, which extends protection if a vendor or a customer sues you for harassment or discrimination. Crucially, a robust EPLI policy should also cover ADA Non-compliance issues—both physical access and online/website accessibility. While the carrier won't pay for the actual remediation (like building a ramp), they will pay for the legal defense, which is often the most expensive part of a "drive-by" ADA lawsuit.

Similarly, in Cyber Insurance, a budget quote often excludes Social Engineering or Cyber Crime. If an employee is tricked into wiring $50,000 to a fraudulent account, a standard Cyber policy without a specific Social Engineering endorsement will not pay. You aren't comparing "apples to apples" if one agent has built a comprehensive shield and the other has handed you a sieve.

Why does my NCCI Class Code matter more than my premium?

The NCCI Class Code is the DNA of your insurance premium. Every job function is assigned a four-digit code based on the historical frequency and severity of injuries in that role.

Disclaimer: The rates mentioned below are illustrative examples only. Because NCCI and state-specific bureaus adjust rates down to the county or zip code level, your actual costs will vary significantly based on your exact location and state-mandated filings.

• Class Code 8810 (Clerical): Very low rate (e.g., $0.15 per $100 of payroll).

  
  

• Class Code 8017 (Retail Store): Moderate rate (e.g., $1.50 per $100 of payroll).

  
  

If an agent misclassifies a group of "Delivery Drivers" as "Retail Clerks" to lower the quote, they are committing what is essentially "Rate Evasion." During a Workers' Comp audit, the auditor will look at the actual job descriptions. If they find the classification was wrong, they will re-rate the entire payroll at the higher rate retroactively. The franchisee is then stuck with a bill they didn't budget for. When you see a quote that is significantly lower, the first thing you should check is the Class Code assignment. Is it accurate to what the employees actually do, or is it a "best-case scenario" designed to win the bid?

Data Point: The Cost of Misclassification

According to data from the National Association of Insurance Commissioners (NAIC), premium audits result in an average upward adjustment of 10% to 15% for businesses that do not actively manage their class codes throughout the year. Because the NCCI maintains the integrity of the data pool, carriers are mandated to collect the correct premium once an error is discovered. This means a "cheap" quote today is statistically likely to become an "expensive" audit tomorrow.

FAQ

If I have the same carrier as another franchisee, shouldn't my rate be the same? No. Rates are built on layers: the state-filed base rate, the carrier’s specific "tier," your individual Experience Modification Rate (EMR) based on your loss history, and any credits or debits the underwriter applies based on your specific operations.

How can I tell if a quote is "missing" something? Compare the "Schedule of Policies." If one quote only covers Liability but the other includes Workers' Comp, Cyber (with Social Engineering), and EPLI (with Third-Party/ADA defense), the "cheaper" one is simply providing less protection.

Why does the agent ask for my P&L and safety manual just for a quote? A high-quality agent uses your P&L to verify that your payroll and revenue estimates are realistic, preventing audit surprises. The safety manual allows them to negotiate "Scheduled Credits" with the underwriter, lowering your price through better risk presentation rather than cutting corners.

What is the "Experience Modification Rate" (EMR), and how does it affect my comparison? Your EMR is a multiplier based on your claims history compared to the industry average (1.0 is average). If you have a 1.2 EMR and another franchisee has a 0.8, you will pay 50% more for the exact same insurance because you are statistically "riskier" to the carrier.

Why can't I just have my new agent call the same company I already have? Because of "Market Blocking." The carrier will not talk to two different agents about the same client simultaneously. To change agents while keeping the same carrier, you generally have to fire your current agent via a Broker of Record letter.

Conclusion

Comparing insurance quotes in a franchise system requires shifting the focus from the bottom-line number to the underlying systemic data. A "lower rate" is often just an artifact of lower exposure estimates, aggressive class code selection, or the removal of critical coverage endorsements like ADA defense or Social Engineering. As an operator, your goal isn't to find the cheapest "paper"; it’s to ensure that when a $500,000 slip-and-fall or a $100,000 employment claim occurs, the risk actually transfers to the carrier’s balance sheet instead of staying on yours. If you cannot explain why one quote is cheaper than another by looking at the payroll, class codes, and exclusions, you aren't making an informed financial decision—you are taking an unhedged bet on your business's future.

About the Author

Wade Millward is the founder and CEO of Rikor, a technology-enabled insurance and risk management company focused on the franchising industry. He has spent his career working with franchisors, franchisees, and private-equity-backed platforms to uncover hidden risk, design scalable compliance systems, and align insurance strategy with how franchise systems actually operate. Wade writes from direct experience building systems, navigating claims, and helping brands scale without losing visibility into risk.