Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Navigate Rising Commercial Insurance Premiums
Transcript
- Lucas: So, Luna, I was looking at the latest numbers on commercial insurance premiums for small businesses, and the trend is not pretty. Nationwide, we're seeing double-digit increases for the third consecutive year. Luna: Double digits? That's brutal. Are franchisees getting hit harder than the average business owner? Lucas: In a lot of cases, yes. The quote I keep seeing is that franchise businesses face premium jumps anywhere from twelve to twenty percent depending on the sector. Quick-service restaurants, for instance, are seeing the worst of it because of liability concerns and property replacement costs. Luna: So what's driving this? Is it just inflation and construction costs, or is something else going on? Lucas: It's a mix. Construction costs have pushed up replacement values, so your property insurance automatically goes up. But there's also the liability side. Social inflation, larger jury awards, more litigation. That's hitting commercial auto and general liability hard. Luna: And I imagine franchisees are a bit like sitting ducks because they have a lot of public-facing operations. Lucas: Exactly. High foot traffic, employees dealing with customers, food, machinery. There's a lot of exposure. And the franchise model itself adds some unique wrinkles. Luna: Like what? You mean because the franchisor sets some of the standards? Lucas: Right. Many franchise agreements mandate specific coverage limits, named insureds, additional insureds for the franchisor. That limits your flexibility to shop on pure price. You have to hit those minimums. Luna: So what are franchisees actually doing to push back? I mean, you can't just absorb twenty percent increases every year. Lucas: The smart operators are going to work on the things they can control. One of the biggest is improving their loss runs and claims history. The cleaner your record, the better your negotiating position. Luna: That sounds obvious, but how do you actually improve your loss runs in a meaningful way? Lucas: It starts with a real safety culture. I'm not talking about a poster on the wall. I'm talking about documented training, regular risk audits, and a clear protocol for reporting incidents. Insurers look at that stuff when they're pricing your policy. Luna: So it's about showing the insurer you're a better risk, not just saying you are. Lucas: Exactly. And there's a concrete example I came across. A franchisee with three quick-service locations in Ohio managed to cut his premium by eighteen percent this year. He did it by working with a broker who specialized in franchises, and together they did a deep dive into his risk profile. Luna: Eighteen percent? That's significant. What did they find? Lucas: They found he was overpaying on a couple of policies because he had separate coverage for each location. They bundled everything into a single policy with higher deductibles and a package deal. That alone brought his total premium down. Luna: So bundling is still a big lever. But don't you run the risk of underinsuring if you raise deductibles too much? Lucas: You have to be smart about it. The key is to raise deductibles only on things you can self-insure, like minor property damage, while keeping liability limits where the franchise agreement requires them. It's a balancing act. Luna: And speaking of franchise agreements, can the franchisor help out with insurance purchasing power? Lucas: That's a growing trend. Some forward-thinking franchisors are negotiating national or regional programs that franchisees can opt into. The combined buying power means better rates and more consistent coverage. But not all franchisors do it well. Luna: What should a franchisee look for in a franchisor-sponsored program? Lucas: First, you want to see the actual policy and compare it to what you have. Sometimes these programs are a good deal, sometimes they're just a revenue stream for the franchisor. You've got to read the fine print. Luna: So it's not a no-brainer. Lucas: No, definitely not. But if the program uses data from a lot of units, the underwriters have better data, which usually translates to more stable pricing. That's worth something in this market. Luna: I can imagine. Insurance is one of those costs that just feels arbitrary sometimes. Lucas: It can feel that way, but there's actually a lot of method to it. And if you understand how the underwriters think, you can work the system a bit. That's where a good broker earns their commission. Luna: You know, this kind of practical advice is exactly why people listen to this show. If you're getting something useful out of these conversations, the way we keep it ad-free is through listener support over at buy me a coffee dot com slash fexingo. It's a simple way to say thanks and help us keep doing this. Lucas: Yeah, we really appreciate that. It lets us stay independent and focus on the stuff that actually matters to franchise owners. So, back to premiums — another big lever is considering alternative risk transfer, like captives. Luna: Captives sound intimidating. Is that something a small franchisee can even look at? Lucas: They're not just for Fortune 500 companies anymore. There are group captives where franchisees from the same system pool their risk. It's a way to take some control and potentially get surplus back if claims are good. Luna: That sounds like a bigger commitment, though. Is it worth it for a single-unit owner? Lucas: Probably not for a single unit. The due diligence and upfront costs are higher. But if you have five or more units, or you're in a system with a lot of units, it's worth exploring. Luna: What about just staying with a traditional carrier and negotiating hard every year? Lucas: That's the baseline. But you have to negotiate with information. Get quotes from multiple carriers, even if you don't switch. That gives you leverage with your current insurer. And don't be afraid to point out any errors in your loss runs or premium calculations. Luna: Errors happen? That's scary. Lucas: More often than you'd think. I've seen cases where a claim that was closed with no payment still shows up as a ding for years. Getting that corrected can save real money. Luna: So it really comes down to being proactive and not just accepting the first renewal quote. Lucas: Exactly. The insurance market is cyclical, and right now we're in a hard market. But that doesn't mean you're powerless. The franchisees who do their homework are finding ways to mitigate the pain. Luna: Any final tip for someone who feels overwhelmed by all this? Lucas: Start by understanding your current policy. Know your deductibles, your coverage limits, and your claims history. Then sit down with a broker who specializes in franchises and go through it line by line. That's the first step. Luna: It sounds like insurance is becoming a strategic part of running a franchise, not just a utility bill to be paid. Lucas: Exactly. And with rates where they are, that strategy can be the difference between a profitable year and a struggle. Luna: Great advice, Lucas. And for anyone listening, if you're a franchisee, maybe it's time to pull out that insurance policy and give it a closer look. Lucas: Yeah, and if you want to keep getting insights like this, we appreciate you. And remember, you can support the show at buy me a coffee dot com slash fexingo. Thanks for being here.