Franchise Insurance in Taiwan: Checking Requirements, Cover Gaps and Excesses

When choosing a franchise in Taiwan, look beyond franchise fees and operational support. Ask who is insured if an accident occurs at the premises, who handles the claim and who bears any uninsured losses. A franchise network may share a brand and operating systems, but that does not mean its outlets automatically share insurance cover. Before investing, treat insurance requirements as an ongoing cost and contractual responsibility, rather than paperwork to submit just before opening.

1. Distinguish between legal requirements, franchisor requirements and cover you arrange yourself

Insurance requirements may come from several sources: applicable legislation, the lease, the franchise agreement or the owner's own risk management arrangements. These requirements can overlap, but they are not interchangeable. A franchisor saying that “every outlet must buy this insurance” does not make it a legal obligation. Equally, the absence of a franchisor requirement does not mean the outlet has no statutory duty to obtain cover.

Taiwan has no dedicated franchise law comprehensively governing franchise relationships. However, the Fair Trade Commission has issued its Disposal Directions (Guidelines) on the Business Practices of Franchisors, which operate alongside the Fair Trade Act to address matters such as disclosure during franchise recruitment. Performance of franchise agreements and the allocation of liability also involve general legislation, including the Civil Code.

The guidelines require franchisors to disclose important information, including costs before and after operations begin and restrictions within the franchise relationship. If premiums must be paid to the franchisor or a party it designates, check whether they appear in the relevant cost disclosures. If prescribed insurance arrangements restrict your choice, ask the franchisor to explain them. This does not mean the guidelines set a standard level of cover for all franchise outlets.

Any statutory insurance obligations must be checked separately according to the outlet's location, type of premises and business activities. Start with a three-column checklist: “source of requirement”, “reason it applies” and “supporting documents”. Then have an insurance professional or lawyer in Taiwan review it, rather than relying on a recruitment representative's assurance that “everything is included”.

2. Check who and what is covered, not just the insured amount

A policy cover page or certificate of insurance supplied by the franchisor may not be enough to establish the outlet's cover. Before signing, ask to see the applicable policy wording, endorsements and details of the insured premises. If cover has not yet been arranged, request the proposed insurance package and a formal quotation.

Check the following points in particular:

• Who is insured: Is the company or business that actually operates your outlet covered? Seeing the brand name on the policy is not enough to assume that your business is included.
• Insured addresses and activities: Does the policy cover the actual premises, along with deliveries, off-site activities and any other planned ways of operating?
• Scope of cover: Is there appropriate cover for customer injuries, damage caused by products, damage to equipment and business interruption losses? Do not assume one policy covers everything.
• Limits of indemnity: How do the limits apply to each incident and across the full insurance period? Do several outlets share an aggregate limit?
• Exclusions and excesses: What circumstances are excluded, and how much must you pay yourself for each incident?

For example, a water leak might damage equipment and force the outlet to close for cleaning. The property damage and business interruption losses may fall under different sections of cover. Even if one is paid, that does not mean all the other costs are insured. When comparing franchises, compare the actual cover and the risks left with you, rather than simply the highest advertised insured amount.

3. Put prescribed insurance arrangements and renewal costs in writing

If the franchisor specifies an insurer, broker or group insurance scheme, first ask whether you can use an alternative offering equivalent cover. If not, establish the costs, services and process for changing the prescribed arrangements.

Ask the franchisor to itemise premiums, administration fees and any other arrangement charges separately, and explain whether the quotation is only a first-year estimate. Renewal terms may change because of the scope of cover, underwriting conditions or claims history, among other factors. Do not treat the first-year price as a fixed cost for the entire franchise term. If you are joining a group scheme, also ask whether incidents at other outlets could affect your renewal terms.

Ideally, the agreement should specify who arranges renewal, when proof of cover must be submitted, how premium changes will be communicated and what alternatives are available if cover cannot be renewed on the original terms. If the franchisor can require higher limits or additional cover, negotiate the circumstances in which this can happen, the notice period and the procedure, to avoid sudden costs that are difficult to budget for.

Under the guidelines, important information must be provided ten days before entering into a franchise or preliminary franchise relationship, within a period considered reasonable in the individual case, or within a period agreed by both parties. There is a separate requirement for a contract review period of at least five days, or a period considered reasonable in the individual case. Use these periods to review the insurance schedules and attachments alongside the main agreement, rather than signing first and waiting for the franchisor to supply the details later.

4. Clear responsibilities after an incident matter more than “head office will handle it”

Whether an insurer pays a claim depends on the policy terms and the circumstances of the incident. Responsibility between the franchisor and franchisee, however, depends on the agreement and applicable law. These are separate questions. Pay particular attention to clauses stating that “the franchisee bears all losses”, and whether they also shift losses caused by the franchisor's own conduct onto you.

Before signing, test the process with a specific scenario: a customer is injured in the outlet. Who notifies the insurer? Who preserves CCTV footage and incident records? Who communicates with the customer? Does the franchisee need approval before agreeing a settlement? How are the excess and uninsured losses shared?

The following arrangements should be recorded in the agreement or an attachment:

• The incident reporting contact, procedure and required information, aligned with the policy's requirements.
• How the franchisee can check progress and obtain documents when the franchisor handles a claim on its behalf.
• Principles for sharing the excess, emergency response costs and other amounts not reimbursed by the insurer.
• Notification responsibilities if a policy is cancelled, is not renewed or has its cover changed.

Also clarify whom to notify if a claim relating to an incident during your period of operation arrives after the franchise relationship has ended, and whether the original policy will respond. The date of the incident alone does not establish that a claim will be paid.

A franchisor's failure to disclose important information properly does not automatically invalidate the agreement in every case. Under the guidelines, an assessment under Article 25 of the Fair Trade Act arises where conditions are met, including that the conduct is sufficient to affect trading order. If you have doubts about insurance or contractual liability, obtain advice specific to your circumstances before signing.

Practical takeaway: Before paying, prepare an insurance checklist covering the insured parties, premises, cover, exclusions, excesses, total annual cost and claims responsibilities. Wherever the answer is still simply “head office will handle it”, ask for a specific written arrangement.