Buying a franchise: Get your insurance sorted before signing

When you buy a franchise, you join a network, but you will generally be running your own business. You should therefore not assume that the franchisor’s insurance also protects you. Before signing, establish which insurance policies the agreement requires, who is actually covered and whether the cover suits your day-to-day operations. This will give you a clearer picture of both your risks and your budget.

Distinguish between legal requirements, contractual requirements and your own needs

Denmark has no specific franchise legislation, no dedicated franchise registration scheme and no statutory standard disclosure package that all franchisors must provide before an agreement is signed. Franchise agreements are governed by legislation including the Danish Contracts Act and general principles of contract law. Depending on the activities involved, legislation such as the Danish Competition Act, Marketing Practices Act and Product Liability Act may also apply.

The absence of specific disclosure rules does not mean that material information can freely be withheld. General duties of good faith and disclosure may be relevant. Even so, you should request the insurance documents yourself rather than assume that a particular set of documents will arrive automatically.

Divide the insurance requirements into three groups:

• Compulsory arrangements: For example, employers must generally arrange protection for employees against occupational injuries under Denmark’s workers’ compensation legislation. Specific activities or vehicles may also be subject to compulsory insurance requirements.
• Requirements in the franchise agreement: The franchisor may require particular types of insurance, limits of cover and evidence that the policies are in force.
• Your own cover needs: You may have needs that neither the law nor the franchise agreement requires you to insure, such as protection for fixtures and equipment or certain losses arising from business interruption.

These groups do not necessarily overlap. Meeting the franchise agreement’s requirements is therefore not the same as being adequately insured. Ask an insurance adviser to assess your specific activities and business structure.

Check who a shared insurance policy protects

A shared insurance scheme can be a benefit of belonging to a franchise network. However, labels such as ‘network insurance’ or ‘shared cover’ do not, in themselves, tell you whether your business is insured.

Ask for the relevant policy terms and written confirmation of how your business is covered. In particular, establish:

• Which company is the policyholder, and which businesses are insured?
• Are your Danish business registration number (CVR number), premises and activities covered?
• Is there a single aggregate limit of cover shared by several businesses?
• Who pays the excess and reports a claim?
• Who is notified if the scheme changes or ends?

If several businesses share an aggregate limit of cover, ask your adviser to explain how claims elsewhere in the network could affect the cover available to you. Also ask whether you can take out additional insurance.

Confirmation from the franchisor is not necessarily enough to establish the insurer’s obligations. Make sure the information matches the policy and any endorsements. If there is any doubt, ask the insurer or the insurance intermediary responsible to confirm the position.

Test the cover against your actual operations

Do not start with the names of insurance policies. Start with what the business will do. Describe your sales, advice, deliveries, installation work, storage and any digital services. Include activities carried out away from your usual premises.

Then use specific scenarios to test the quotations. Imagine, for example, that a customer is injured on the premises, a product causes damage or water damage prevents you from opening. Ask your adviser to explain which policy, if any, would respond and which exclusions might be relevant.

Business interruption insurance deserves particular attention. It does not necessarily cover every loss of revenue or every interruption to trading. Check which events trigger cover, whether a waiting period applies and how long compensation can continue. Disruption at a key supplier or in a shared IT system needs to be assessed separately; do not assume it is covered.

Check security and safety requirements too. The policy may impose conditions relating to locks, alarms, maintenance or storage, for example. You must be able to meet these requirements in the premises and with the equipment required by the franchise concept. Otherwise, apparently suitable insurance could cause problems when a loss occurs.

Obtain quotations before committing

Send your adviser the insurance requirements in the franchise agreement, together with your description of the business activities. Ask for a quotation that clearly sets out the premium, excesses, limits of cover, key exclusions and any qualifications or conditions. A quotation based on an imprecise description of the business is an unreliable basis for your budget.

Next, compare the quotation with the agreement. If the franchisor requires cover that you cannot obtain on the stipulated terms, clarify the requirement before signing. The same applies if the insurance can only take effect once particular security or safety measures are in place.

Also agree when cover should begin. You may already have assets at risk and potential liabilities during fitting out, receipt of stock and staff training, before the official opening. Clearly assign responsibility for enrolling in any shared scheme, so that neither party assumes the other is handling it.

Practical takeaway: Only sign once you can link every insurance requirement to specific cover, a known cost and a named person responsible. The network’s name on a policy is not, in itself, evidence that your business is protected.