Buying a NZ Franchise: Check Insurance Requirements

Insurance can look like a routine item on a franchise buying checklist. Yet a requirement to maintain cover is not proof that suitable cover is available, affordable or sufficient. Before joining New Zealand’s franchising community, establish exactly what you must insure, who benefits from each policy and what losses you would still have to meet yourself.

1. Turn the insurance clause into a clear checklist

Ask for the proposed franchise agreement and any insurance requirements contained in the operating manual. If you are buying an existing outlet, request its current insurance schedule and available claims history too. The seller’s arrangements are useful background, but do not assume their policies transfer to you or satisfy today’s requirements.

Create a checklist covering:

• Required types of insurance and minimum limits.
• Maximum permitted excesses, if specified.
• Whether you must use an approved insurer or broker.
• Any requirement to name the franchisor, landlord or another party on a policy.
• Evidence you must supply before opening and at renewal.
• Whether the franchisor can change the requirements during your agreement.

Depending on the business, cover might include material damage, public liability, professional indemnity, product liability, commercial motor or cyber insurance. Not every franchise needs every policy. Ask a broker to match the actual activities to appropriate cover rather than simply copying another outlet’s schedule.

Compare the franchise requirements with the lease and any finance documents. Different contracts can impose different obligations. Give your broker the complete set so that an overlooked requirement does not emerge shortly before settlement.

2. Understand the New Zealand legal position

New Zealand has no franchise-specific legislation, compulsory government franchise registration or statutory franchise disclosure regime. Insurance obligations will therefore depend substantially on the contracts you sign, alongside applicable general law.

The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations in trade. Claims such as “everything is covered through head office” should still be checked against the policy documents. Ask your lawyer about the legal effect of any assurances and any proposed contracting-out provisions.

The Contract and Commercial Law Act 2017 forms part of the general contractual framework. Your lawyer should assess insurance clauses alongside indemnities: an obligation to compensate the franchisor may be broader than the protection an insurer is willing to provide.

The Franchise Association of New Zealand’s Code of Practice and Ethics applies to its members; it is not legislation applying to every franchise. Membership does not establish that your particular insurance needs are met.

Health and safety duties under the Health and Safety at Work Act 2015 also remain important. Insurance does not replace compliance, and insurance against fines under that Act is unlawful. ACC arrangements do not eliminate the need to assess other business liabilities and losses.

3. Test the cover against realistic interruptions

Ask the broker to work through specific incidents: a fire closes the premises, a product injures a customer, a delivery vehicle is damaged, or a cyber incident stops bookings. For each scenario, identify which policy could respond, the excess, key exclusions and the likely uninsured costs.

Business interruption insurance deserves particular attention. It commonly depends on insured physical damage, although policy wording and extensions vary. Do not assume that every closure, equipment failure or loss of access is covered.

Check the indemnity period: the maximum period for which covered interruption losses can be paid. Reopening may require repairs, council approvals, replacement equipment and franchisor approval. Ask whether the selected period reflects that process, not merely an optimistic repair estimate.

Establish how continuing royalties and other contractual payments are treated when calculating cover. Ask your accountant and broker to reconcile the policy’s financial definitions with the franchise’s accounts. An insurance definition of gross profit may differ from the figure used in your management reports.

4. Confirm responsibility and price before committing

If the franchisor offers a group insurance programme, request written confirmation of your position under it. Who is insured? Are limits shared across outlets? Who pays the excess, reports claims and receives settlement money? What happens if the programme is cancelled or you leave it?

Obtain a quotation based on your proposed ownership, location and activities. Budget for premiums, excesses and material uninsured exposures. Ensure the quotation reflects any claims history the insurer needs, and answer its questions accurately with your broker’s help.

Before becoming unconditionally committed, have your lawyer and broker resolve any mismatch between contractual obligations and available cover. Arrange cover to begin when you assume the relevant risks, which may not be the day you first open.

Practical takeaway: Do not accept “insurance included” as the answer. Obtain a written requirements checklist, a suitable quotation and confirmation of who carries each significant risk before you buy.