Buying a Franchise in Australia: Check Insurance Obligations

Insurance can look like a minor item beside the franchise fee and fit-out bill. Yet a requirement you cannot meet, an unexpected excess or a gap in cover can change the affordability of the business. Before joining Australia’s franchising community, establish exactly what you must insure, what it will cost and who carries the risk when something goes wrong.

Start with the agreement, not a premium estimate

Australia’s mandatory Franchising Code of Conduct regulates the relationship between franchisors and franchisees. The current Code commenced on 1 April 2025, with some additional requirements applying from 1 November 2025. The Australian Competition and Consumer Commission oversees compliance. The Australian Consumer Law and general contract law also matter when assessing representations and contractual obligations.

The Code does not replace a careful review of your insurance responsibilities. Your franchise agreement may impose requirements beyond the insurance you would otherwise choose for an independent business.

Ask your lawyer to identify every insurance obligation in the proposed agreement and any documents it incorporates. Then prepare a schedule showing:

• Each required policy and minimum level of cover.
• Any required insurer approval or policy wording.
• Whether the franchisor or another party must be noted on a policy.
• When cover must begin and how long it must continue.
• What evidence of insurance you must provide, and when.
• Whether the franchisor can change the requirements during the term.

Do not assume that a general instruction to obtain “adequate insurance” is straightforward. Ask what would satisfy that obligation and obtain a written response before committing.

Get quotations for the actual operation

A premium paid by another franchisee is a useful conversation starter, not a reliable budget. Your location, activities, turnover, staffing, assets and claims history can affect availability, pricing and terms.

Give an insurance broker the proposed agreement and a clear description of the business. Explain all intended activities, including delivery, off-site work, online sales or professional services where relevant. A quotation based on an incomplete description may not provide the protection you expect.

Depending on the business, policies to discuss could include public and product liability, property, business interruption, professional indemnity, cyber and commercial motor cover. These are possibilities to assess, not a universal checklist of legally compulsory policies.

Workers’ compensation requirements depend on the applicable state or territory scheme and your employment arrangements. Other compulsory cover can depend on your activities or licensing requirements. Ask the broker and your advisers to distinguish legal obligations from the franchisor’s contractual requirements.

Request a written breakdown of premiums, taxes, charges, payment fees and excesses. Check whether the quotation remains valid until the planned opening date. If the business will not open immediately, ask what cover is needed during fit-out, training or other preparatory work.

Examine exclusions and responsibility for claims

Meeting a contractual minimum does not necessarily mean every important risk is insured. Ask the broker to explain exclusions, limits and conditions in plain English, using realistic situations from your proposed operation.

For example, what happens if equipment failure stops trading, a customer alleges injury or a cyber incident prevents access to the booking system? For business interruption cover, establish which events trigger protection, any waiting period and how long payments could continue. Do not assume that every interruption to revenue is covered.

Where the franchisor offers access to a group insurance arrangement, ask:

• Who is insured, and for which activities?
• Are limits available separately to your business or shared?
• Who pays the excess and manages a claim?
• Can you obtain the policy wording and evidence of cover?
• What happens if the arrangement changes or ends?

Ask your lawyer and broker to review contractual indemnities together. A promise to reimburse the franchisor for losses may extend beyond what an insurer will pay. That difference can leave you personally or commercially exposed, depending on the business structure and contractual commitments.

Build the findings into your purchase decision

Put confirmed insurance costs into your operating budget rather than relying on a rough allowance. Separately assess whether the business could fund an excess and survive a period when a claim is being investigated or an uninsured loss occurs.

Before signing, resolve any mismatch between the franchise requirements and the cover available. If an insurer cannot provide the required wording, seek a documented contractual solution through your lawyer rather than relying on verbal reassurance.

Keep the final requirements, quotations and advice together. After purchase, diary renewal dates and evidence-of-cover deadlines, and notify your broker when business activities change.

Practical takeaway: Treat insurance as a purchase condition, not an opening-day task. Know what the agreement requires, obtain suitable quotations and identify the losses that would still be yours to bear.