Manage your risk to ensure franchise success

Commercial Lines

Manage your risk to ensure franchise success

Published: 24 April 2014

Having the correct insurance cover for your franchise, could make or break your business. Santam, South Africa's leading short-term insurer today warned that unforeseen setbacks could cost franchise owners dearly, if they are not adequately insured.

Santam currently insures over 1 400 franchises in South Africa, reflecting 117 of the 179 listed franchises in the country.

Said Shehnaz Somers, Head of Commercial Underwriting at Santam: "Having the correct insurance cover is vital for franchise owners. If properly covered and faced with an unforeseen set-back, franchises are protected from undue business interruption that could lead to financial losses or, in extreme cases, a complete shut-down of their franchise."

"Over the past three years, nearly 41% of our franchise-related claims were motor-related, while 17% were as a result of fires. At least 14% of claims were as a result of accidental loss or damage," said Somers.

According to Somers, underinsurance is still common among South African small businesses as well as franchises. "We urge franchise owners to check whether they've got the right cover that is suitable to their business needs," she said.

Many South African entrepreneurs are recognising the benefits of franchising, as illustrated by a Sanlam-sponsored survey released by the Franchise Association of South Africa (FASA) recently. Not only did the survey reveal that franchising contributed an estimated R302 billion (9.7%) to South Africa's GDP in 2012, it also showed that the South African franchise industry employs more than 300 000 people across South Africa.

Santam provides tips to existing and potential franchise owners in order to obtain adequate short-term insurance:

  • Choosing the correct insurance
  • This is dependent on the insurance requirements stated in the franchisors agreement.
  • Saul Chait, Director at CJB Brokers, who specialises in insurance for franchises says, "There are advantages when opting to make use of your franchisor's insurer. One is that an existing insurance package will more than likely be in place, and whether your franchise is situated in a high or low risk area you will pay a standard fee. Just make sure you are fully covered as you don't want to run the risk of not being covered if something happens at a time when a mishap sends your business to your competitor."
  • Don't take short-cuts
  • Risks that franchise owners consider as low risk often ends up being a costly mistake and result in their franchise being underinsured. Owners often feel liability cover is not necessary until a customer slips on the floor of their premises.
  • Purchasing incorrect or inadequate cover can jeopardise your franchise's success.
  • Consider Business Interruption cover

  • A franchise owner might not think Business Interruption cover is necessary. However, should a franchise face financial loss due to unforeseen circumstances, the continuation of its operation would be covered and the insurer would bear the costs during this period.
  • An example - should part of the premises of a franchise be damaged in a fire , having Business Interruption cover means the franchise owner will be protected and put in the same financial position as it would be in had the damage not occurred thus minimising the detrimental impact this interruption could have on its franchise.
  • Suitable intermediary is vital
  • Intermediaries are most helpful when enquiring about insuring a franchise as they have much experience and market knowledge.
  • Intermediaries highlight potential problems that as a franchise owner you would might not have considered, providing you with a customised package that best suits your business requirements and ultimately minimising possible loss that could cripple your franchise. 
  • Understanding your policy
  • "Make sure you understand exactly what your policy covers and all the types of insurance available to your business. Look for what you think could happen, and make sure you have cover for that event. You can never be too careful," says Chait.