Singapore Franchise Agreements: Allocate Insurance Duties

When you franchise an existing Singapore business, your current insurance arrangements may not fit a network of independently owned outlets. A customer injury, damaged premises or interruption to trading can expose gaps between the franchise agreement and the policies behind it. Before offering your first franchise, decide which risks each party should insure and how you will check that suitable cover remains in place.

1. Map risks to the business responsible

Start with your existing operation, but do not simply copy its insurance schedule into the franchise agreement. A company-owned outlet and a franchisee-owned outlet may have different employers, tenants, equipment owners and contractual responsibilities.

Prepare a responsibility table covering premises, stock, equipment, employees, customers, products and digital systems. For each item, record:

• Which legal entity owns or controls it.
• Who could face a claim or financial loss.
• Which party is expected to arrange insurance.
• What evidence will confirm that the cover is suitable.

For example, a franchisee may lease the premises and employ the outlet team, while the franchisor supplies branded products and operates a shared ordering platform. Those arrangements create different exposures; requiring the franchisee to insure “all business risks” does not resolve them.

Discuss the table with a Singapore insurance broker and your lawyer. Treat it as a planning document, not a substitute for policy wording or legal advice.

2. Set requirements around actual exposures

Ask the broker to recommend cover based on the activities franchisees will perform. Depending on the business, relevant policies may include public liability, product liability, property damage, business interruption, cyber or professional indemnity insurance. These are possible categories, not a universal package or a statement that each is legally compulsory.

Examine the boundaries carefully. Does a policy cover delivery, work at customers’ premises, temporary events or services delivered online? Are stock and equipment valued appropriately? Does business interruption cover respond only after specified insured damage, rather than every reason an outlet might close?

Avoid choosing a coverage limit merely because another franchise uses it. Consider the potential severity of a loss, landlord requirements, contractual commitments, available policies and affordability. Have the broker explain deductibles, exclusions and important conditions.

Also identify applicable statutory insurance obligations. For example, Singapore’s Work Injury Compensation Act imposes compulsory work injury compensation insurance requirements for specified categories of employees. The franchisee should obtain advice on its obligations as an employer rather than assume a general business policy satisfies them.

3. Put clear duties in the agreement

Singapore has no franchise-specific legislation, compulsory franchise registration or statutory franchise disclosure document requirement. Franchise relationships are governed principally by general contract law, alongside applicable legislation. The Franchising and Licensing Association of Singapore’s Code of Ethics binds its members; it is not a statutory code applying to the entire franchising community.

Your insurance arrangements therefore need clear contractual drafting. The agreement should identify the required types of cover, how limits are specified, when policies must begin and how long they must remain effective.

It should also address evidence of renewal, notification of cancellation or material changes, and responsibility for deductibles. If requirements may change, establish a reasonable review process rather than an unrestricted power to demand any insurance at any cost.

Where a landlord or franchisor needs to be noted on a policy, ask the broker which status is appropriate and available. Naming another party does not automatically insure every liability it might incur. Ensure the agreement requests something the insurer can actually provide.

4. Align insurance with liability clauses

Insurance, indemnities and exclusions of liability perform different functions. Insurance responds according to policy terms. An indemnity allocates specified financial responsibilities between the contracting parties. An exclusion seeks to limit liability. None automatically makes the others effective.

Ask your lawyer to compare these provisions together. A broad indemnity could leave a franchisee responsible for losses outside its insurance, including liabilities assumed solely under the agreement. Conversely, a policy may protect only the named insured and not the franchisor.

Singapore’s Unfair Contract Terms Act can restrict certain exclusions and limitations of liability. Liability for death or personal injury resulting from negligence cannot be excluded; restrictions concerning other negligence losses are subject to a reasonableness requirement. The Act’s application depends on the provision and circumstances, so avoid treating a signed clause as automatically enforceable.

Do not promise franchisees that insurance removes their financial exposure. Uninsured events, deductibles and policy limits can leave substantial costs with the business.

5. Build a simple renewal and claims process

Before opening, obtain evidence that the correct franchisee entity, activities and location are covered. Maintain a renewal register with a named person responsible for follow-up. A certificate is useful evidence, but it does not replace checking relevant policy terms and endorsements.

Create an incident reporting procedure that distinguishes notification to the franchisor from notification to the insurer. Require prompt reporting, preservation of evidence and compliance with policy conditions. Staff should know whom to contact without making unauthorised admissions or promises of compensation.

Practical takeaway: Before signing your first franchise agreement, match every insurance duty to a real risk, a responsible entity and obtainable cover. Then establish a repeatable process for renewals and incidents.