For franchises and other businesses, it's time to dust off your "reduce the risk" hat for a while because insurance rates across the board are going to go up in price. Insurance companies are among the many industries that have had a tough 2020 and the two things that drive rates hit insurers hard this year — claims and capacity. Franchisees and franchisors will have to demonstrate to insurance providers that you are genuinely wanting to have fewer claims and run a tight ship to keep rates manageable.
There is plenty of evidence to signal rising claims running the gamut from weather-related events to COVID exposures. Companies have been hit in all lines except Auto. General Liability, Employment Practices Liability Insurance, and Directors and Officers Liability. COVID actually cut Auto exposures but have drastically increased exposures everywhere else.
Another real factor is the financial situation affecting insurance companies — very low returns on their investment dollars mean they must make underwriting profits to survive. That's the capacity issue that could mean fewer insurance companies willing to take on marginal risk customers. Businesses, including franchises, must be able to demonstrate that the business is an "above average" risk to be able to demand pricing that is favorable.
The best advice is to know your agent well enough to be able to answer the following questions:
- Does your agent understand your business and your loss history?
- Does your agent support your business model or is it a representative who primarily offers generalized products to any willing buyer?
- If rates move up, will your agent work with you on a business plan to prove you’re a good risk will pay dividends?
If the answer to any of these questions is "no," start looking now for a qualified agent. This environment is one in which franchisors will absolutely want to make sure franchisees have the correct and appropriate amount of insurance. If it's a growing franchise, small or mid-size without the bandwidth to have a compliance officer, a franchise can benefit from a service like EZCERT to ensure the risk bearer is the responsible party in a loss and will be a valuable tool.
Now more than ever, it is critical to be more than an insurance buyer, it is time to make sure risk is reduced and that you're managing self-insurance and deductibles to put your business dollars ahead.
Doug Groves is the Founder/Principle of Program Insurance Group. For more information on International Franchise Association (IFA) supplier member Program Insurance Group, click here.