How to Set Franchise Insurance Requirements in India

When franchising your existing business, planning the premises, training and fees is not enough. You also need to decide in advance who will make an insurance claim and who will bear the costs if a fire, customer injury or faulty product causes a loss. To build trust within your franchise network, treat insurance not as a paperwork exercise, but as part of business continuity planning.

1. Start by mapping the risks

Begin with your experience of running your own outlet. List the risks associated with premises, equipment, stock, employees and customers separately. In rented premises, the landlord may insure the building, but that does not necessarily cover your equipment or the goods stored inside.

Create a simple table showing the potential incident, the property or person affected, the responsible party and the cover available. For example, stock damaged by flooding and a customer injured in a slip are different risks; a single policy will not necessarily cover both.

Also consider how a franchise outlet’s risks differ from those of your own premises. Changes in location, kitchens, machinery, storage and distribution arrangements can alter insurance needs. Rather than imposing the same policy on every franchisee without reviewing their circumstances, set common minimum standards and require additional cover where appropriate.

2. Understand the role of law and the franchise agreement

India has no dedicated national franchise law, franchise-specific registration system or mandatory pre-contract disclosure document. This makes it important to spell out insurance responsibilities in the franchise agreement. It does not mean franchises are exempt from general business laws.

The Indian Contract Act, 1872 provides the basis for the validity and performance of agreements and the consequences of breach. The Consumer Protection Act, 2019 may apply to defective products, deficiencies in services and related consumer claims. The liability of the brand owner or franchisee will depend on the facts and their respective roles; allocating costs in an agreement does not remove consumers’ statutory rights.

Specific activities may carry separate insurance obligations. For example, activities involving motor vehicles or certain hazardous substances require a review of the relevant legislation. It would be incorrect to say that one insurance package is legally compulsory for all franchise outlets. Ask an insurance adviser and a lawyer to check the requirements against the activities actually carried out.

3. Specify the cover you need, not just the policy name

For property insurance, arrange appropriate valuations of equipment, stock and fit-out works. Public liability insurance may be useful for certain claims involving injury to customers or other third parties, or damage to their property. Businesses selling products should also consider product liability cover. Professional services may have different insurance needs.

Make sure you understand business interruption cover too. Such cover often depends on conditions linked to physical damage covered by a policy; a fall in sales or the closure of an outlet does not, by itself, guarantee a payout.

When reviewing a policy, obtain written clarification of the following:

• Whether the insured parties, address and declared business activities are correct.
• The overall limits of cover, sub-limits and the excess payable on each claim.
• Any exclusions relating to flooding, theft, improper storage or other significant risks.
• The deadlines for notifying claims and the records required.

It may be useful to name the brand owner as an additional insured, but this depends on the insurer’s approval and the policy terms. Simply naming them in the franchise agreement is not enough.

4. Allocate responsibilities clearly in the agreement

State who will buy the policy, pay the premium and provide evidence of renewal. Require the necessary cover to be in force before the outlet opens. If there are risks during the tenancy, construction or equipment installation stages, consider those periods separately too.

Retain the right to inspect the relevant policy schedule and terms, as well as the insurance certificate. Assign responsibility for notifying policy cancellation, reductions in cover or changes in business activities. The arrangements for when notifications must be made and who must receive them should be practical.

Keep insurance and contractual indemnities separate. A franchisee’s contractual promise to compensate for a loss does not oblige an insurer to pay. Obtain legal advice on how uninsured losses, excesses and claims exceeding policy limits will be allocated.

5. Prepare the claims process before an incident occurs

Each outlet should have a contact list and a short incident report form. The priority should be people’s safety and preventing further immediate damage; the relevant authorities, insurer and brand office should then be notified as appropriate. Preserve photographs, purchase invoices, maintenance records and details of the incident.

Check the policy terms before admitting liability or agreeing a settlement. Internal reporting procedures must not delay timely notification to the insurer.

Practical takeaway: Before granting your first franchise, prepare a risk register, an insurance responsibilities schedule and an incident reporting procedure. At every renewal, check that the cover still matches the business as it actually operates.