It is Always the Little Things that Trip You Up

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Gaps in Your Defences

What started as trickle could have been a disaster. But, who goes around looking for holes in the Dykes? What sort of job is that?
Mostly, we are interested in sailing the Seven Seas, not standing around looking for small gaps in our defences.
Yet, there is a breed of humans who do exactly that. Auditors.

So, Call in the Auditors
A franchisor executive recently told me this story. They were a publicly traded company. Large cap.
And as auditors are trained to do, they thought they spotted a gap in the franchisor's defences.
They weren't sure.
And they wanted to be sure. (Especially, because it lead to billable hours. Lots of them.)
So, they asked the franchisor:
"Hey, Are Your Franchisees in compliance with insurance requirements as laid out in Franchise Agreement?"
The auditors were doing their job - trying to catch potential leaks before they became floods.

The Production of the Records
So, this franchisor executive asked for the production of their insurance file from staff.
Simple request.
Here is what the request produced:
1. The franchisor didn't know if they were named as "additionally insured". Meaning they didn't know if they were going to be covered if the franchisee and the franchisor were going to be sued, together. If a franchisee is sued, the franchisor almost always sued, too.
2. The franchisor didn't know how many franchisees were in compliance with the insurance requirements.
3. The franchisor didn't how many franchisees had the right amount of coverage.
4. Heck, the franchisor didn't know how many franchisees even had insurance!
He complained to me:
"KPMG asked for records - we didn't have them. Caused us a lot time and money - all of which was wasted."
Cleaning up after a flood is not so fun.
The Program Insurance Certificate Solution
I told you that true story to tell you another one.
That same franchisor executive told me how he had implemented a program insurance certificate program at the previous franchise he had worked with.
It was a simple idea:
a) Appoint an insurance broker as the preferred vendor for insurance.
b) As part of the deal, the insurance broker had to keep a record of all the insurance certificates.
c) As part of the deal, the franchisor would give the insurance broker the telephone numbers of each of the franchise owners & tell them to expect a call.
The franchisor got their insurance records for "free", and the insurance broker got the opportunity to make a lot of warm sales calls.
Better than waiting for flood, wouldn't you say.

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For franchisors knowing that they are named as an Additional Insured on their franchise owner's policies is kind of important to keep track of.

It's really important when there's an incident at a franchised location or with a franchisee and lawsuit happens naming the the franchisor as well.

All franchisors need to read this article. It is so important to have a process in place to make sure your franchisees are compliant with insurance requirements, and that they have named the franchisor as "Additional Insured". If you are a franchisor, and you need help in this area, give me a call - (866) 315-2365

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About this Entry

This page contains a single entry by Doug Groves published on October 14, 2014 9:53 AM.

What Your HR Staff isn't Documenting is Costing You Money was the previous entry in this blog.

Death of a Franchise Salesman is the next entry in this blog.

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