Buying a Singapore Franchise: Check Insurance Obligations

A franchise agreement may require insurance before you receive the keys, employ staff or serve your first customer. Yet a contractual promise to maintain cover does not mean an insurer will provide it on acceptable terms. Before joining Singapore’s franchising community, have an insurance broker review the actual requirements alongside your proposed operations. The aim is to establish what you must buy, what it protects and what remains your responsibility.

Understand where the insurance obligation comes from

Singapore has no franchise-specific legislation governing the offer and sale of franchises, no franchise registration requirement and no mandatory franchise-specific pre-sale disclosure regime. The relationship is primarily contractual, with general laws applying to matters such as contracts, misrepresentation, companies and intellectual property.

That means you should not expect a standard statutory insurance package for franchisees. Your obligations may arise from several places: the franchise agreement, an incorporated operations manual, your lease, equipment finance documents and laws applicable to your activities or employees.

For example, the Work Injury Compensation Act imposes compulsory insurance requirements for certain employees. This is separate from any broader cover the franchisor demands. Ask your broker to identify which requirements are legal obligations and which are contractual conditions; they are not interchangeable.

Request every document containing an insurance requirement before signing. A statement that you must hold “adequate insurance” or comply with “the franchisor’s requirements” is not a usable specification. Ask for the policy types, limits, excesses, required endorsements and evidence you must supply.

Turn the contract into a broker-ready checklist

Prepare a schedule matching each contractual requirement to a proposed policy. Give the broker an accurate description of your activities, including delivery, off-site work, online sales and any products you prepare or import. Cover suitable for one outlet format may not suit another.

Depending on the business, discuss:

• Public and product liability: claims involving injury or property damage connected with your premises, activities or products.
• Property and stock: damage to fit-out, equipment and inventory, including any relevant exclusions for deterioration or equipment failure.
• Business interruption: financial loss following an insured event, subject to the policy’s triggers, conditions and indemnity period.
• Professional indemnity: relevant risks where the business provides advice or professional services.
• Cyber insurance: selected costs and liabilities associated with covered cyber incidents, rather than an assumption that every technology failure is insured.

Ask the broker to flag requirements that cannot be met exactly. A contractual demand to cover “all losses”, for example, does not remove policy exclusions.

Also establish whose insurance you are buying. If the franchisor offers access to a group policy, request its wording and confirm whether your operating company is insured, whether limits are shared and what happens if the arrangement ends. A certificate alone will not explain all those points.

Check whose interests the policy protects

Some agreements require the franchisor to be named as an additional insured. Others require the franchisee to insure property belonging to another party or arrange particular insurer notifications. Have the broker explain the effect of each requested provision and confirm whether the insurer will accept it.

Do not assume that naming the franchisor transfers your own responsibilities to the insurer. Equally, do not assume the franchisor’s policy protects your company simply because you trade under its brand.

Have your lawyer and broker compare the agreement’s promises with the policy’s actual protection. In particular, identify contractual liabilities that the insurer may exclude or cover only in limited circumstances. Insurance and contractual responsibility need to be reviewed together, but they are not the same thing.

Clarify claims handling too. Who must notify the insurer, who communicates with the franchisor and who can approve a settlement? Your franchise procedures should not cause you to miss policy notification requirements or make admissions without insurer approval.

Confirm affordability and continuity before committing

Obtain indicative quotations based on the actual wording, rather than allowing an unexplained insurance allowance in your budget. Compare premiums alongside excesses, exclusions and limits. A cheaper policy may leave a contractual requirement unmet.

Confirm when cover must begin: fit-out work can create exposure before trading starts. Check renewal dates and who monitors certificates, premium payments and policy changes.

If the franchisor can increase required limits, ask for reasonable notice and a process for addressing unavailable cover. Record any agreed departures from the standard requirements in the signed documents, with legal advice.

Practical takeaway: Before signing, obtain a written insurance schedule, a broker’s assessment of whether it can be met and realistic quotations. Resolve any gap between the contract and available cover while you can still negotiate.