Risk management is crucial for various types of businesses, including franchises. Although franchising offers several advantages, it is not immune to hazards or unforeseen circumstances. This is where insurance comes into play to help franchisees as part of their overall risk management strategy.

By obtaining the right insurance coverage to protect their business, especially from events that could lead to financial loss (such as accidents, fire, flood, etc.), franchisees can manage risks more effectively and continue to meet their financial obligations, such as to their franchisor (e.g., royalty payments). However, it is important to determine the right kind of insurance you need to cover your bases, which will depend on the industry you’re in, the type of products/services you offer, the location, etc.

We’ve compiled the most common types of insurance, but it is always best to consult with your franchisor and/or any franchisor-provided documents, such as the franchise agreement, to determine the brand’s specific insurance requirements and if there are preferred insurance providers associated with the franchise.

GENERAL LIABILITY

This type of insurance can offer protection against a broad spectrum of potential liabilities and provide coverage when a franchisee is found to be legally responsible for third-party claims, including but not limited to bodily injury, property damage, advertising injury (i.e., libel, copyright infringement, etc.), and more. From legal fees to potential medical expenses, costs can add up, making this insurance often required in franchising.

While general liability insurance can be important to obtain, it won’t cover every incident your franchise business may face. Coverage will differ depending on the insurance provider, so discovering what’s missing can often help you determine the other types of insurance you may need. For instance, general liability insurance typically does not cover costs resulting from a burglary, property damage caused by you or one of your employees, employee injuries/illness while on the job, cyber-related attacks, and more.

PRODUCT LIABILITY

If you require general liability insurance for your franchise location(s), it is important to determine if product liability coverage is included. If not, you may need to purchase it separately if the franchise business warrants it.

This type of insurance is useful if a franchisee faces third-party claims that a product they sold was defective, leading to property damage or causing injury. If the franchise business you invest in sells products to customers, product liability insurance can be key in covering costs arising from such claims.

PROPERTY INSURANCE

As the name implies, this type of insurance can help cover a franchisee’s property, which can include the actual building and items inside, such as furniture, inventory, equipment used to run the business, etc.

For instance, if there’s natural disaster, the location has a fire, or a burglary occurs that causes damage, this type of insurance can help cover the repair costs so there is less of a wait time for a franchisee to get their location back up and running. Because the causes of needing such insurance are hardly ever anticipated, especially the extent of damage, property insurance can be incredibly important to have if the unexpected does happen.

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WORKERS’ COMPENSATION

If a franchisee hires team members and the team can suffer work-related injuries or illness on the job, providing workers’ compensation insurance would be beneficial. The specific coverage details will depend on the insurance provider and the state, but it can often compensate for the team member’s medical expenses and lost wages. This type of insurance can also help protect the franchisee from lawsuits, as in many cases, the employee gives up the right to sue. Providing workers’ compensation can be a significant way for franchisees to help protect their team while they are on the job.

CYBER LIABILITY INSURANCE

In today’s tech-focused world, it is rare to see a business without at least one piece of technology helping run daily operations. This also applies to franchise businesses, especially with the growing use of artificial intelligence for inventory management, customer service, e-commerce, and more.

Unfortunately, cyber-attacks and data breaches can happen, especially when customer transactions are involved. If they are significant enough, they can cause a loss in business, leading to a loss in revenue. Cyber liability insurance can help protect franchisees against financial losses, legal fees because of the incident, and other associated costs.

BUSINESS INTERRUPTION INSURANCE

Business interruption insurance is often offered as an add-on to existing insurance policies rather than a standalone policy. However, this type of coverage can be particularly beneficial for franchisees who want to help protect their business in case of unexpected events, such as natural disasters, that may force them to close their location.

The exact coverage may depend on the provider, but in many cases, one of the key advantages of this insurance is that it can compensate the franchisee for the revenue they would have generated if they had continued operating. Having this protection can take a massive weight off the franchisee’s shoulders, as it means they can still often meet the financial obligations to their franchisor and allow them to take the time to rebuild or take the necessary steps to reopen without suffering a severe financial loss.

FRANCHISING WITH DOGTOPIA

Dogtopia offers robust support to franchisees in our network and can guide you through each step of your franchising journey to help you succeed. If you are interested in bringing a Dogtopia to your community, check out the differentiators that help set us apart from other franchise systems and hear from some of our current franchisees about why Dogtopia was the right business investment for them.