Outside the FDD
Policy Changes
Risk Management
Continued from page 49
that includes property , liability , auto , umbrella , workers ’ comp , crime , Employment Practices Liability Insurance ( EPLI ) and cyber liability ,” said Matt Warsh , partner and insurance agent with KIG Insurance . “ However , a larger operation with certain ownership intricacies , investor groups or private equity involvement will need to be looking at a much broader scope of insurance products meant to cover the management liability lines , specifically D & O coverage for the board , fiduciary liability and other life insurance-related products for important individuals as part of a buy / sell agreement or a true key-man life insurance policy . Additionally , depending on your location , a health club surety bond may be required by your specific state to operate each of your clubs .”
Another concern franchisees may be faced with is cyber protection . Warsh outlined that cybersecurity and EPLI coverages have been on the rise in recent years . “ Historically , these were an afterthought , but in the last handful of years , the cyber risk has picked up tremendously with phishing attempts , hackers , ACH fraud , malware and bitcoin ransom . It ’ s important to have an IT vendor who can help secure your systems and network from these risks ,” he said . “ Hence , this is why PF has added cyber liability to the checklist of required insurance coverage . Additionally , with the high employee turnover rate at health clubs , especially through the pandemic , employment practice liability has become so important to protect the business owners from any alleged harassment , wrongful termination or discrimination suits . If you are coming out of pocket for these defense costs , you are in big trouble .” Luckily , aside from insurance policies , there are other
Most banks will take your business . We ’ re dedicated to earning it . methods to protect a business from cyber security threats . “ Requiring multi-factor authentication ( MFA ) to access company email is probably the single best way to prevent a cyber breach . MFA is an authentication method that requires the user to provide two or more verification factors to gain access , e . g ., texting a code to the user ’ s mobile phone ,” said Soden .
Outside the FDD
Policies outside those required by the FDD also protect businesses . Insurance protecting against natural disasters is a type that certain franchisees may want to consider . For example , franchisees with clubs on the coast of the United States should invest in policies specifically for hurricanes and flooding .
“ Flood insurance is not required by the FDD and is often overlooked . However , it ’ s not only important to have the coverage but also to be sure the limit is adequate . The maximum limit provided by the Federal Flood Program is not adequate , so it is important to secure excess limit in the private market . The single largest Planet Fitness franchisee claim we ’ ve seen was a flood claim , and it was a multi-million-dollar claim ,” said Soden .
It is imperative that franchisees are proactive in reviewing their existing policies to make sure it has everything needed , especially when it comes to property coverage . “ Property coverage is becoming extremely expensive or hard to place in certain U . S . markets with catastrophic exposure to Mother Nature events ( California , Florida , Texas , New York , anything coastal , etc .), hence playing with deductible levels to lessen the cost but also being cognizant of the true risk is a game we need to play lately ,” Warsh said . “ Additionally , look at your property policy to ensure you have rooftop HVAC coverage or off-premises utility coverage or extended period of indemnity clauses , etc . These are all coverage nuances that can be important as they relate to claims we often see at health clubs . These are little details the normal gym owner would rely on their insurance agent to check for them , but they are often missed in policies we review .”
For franchisees looking to cover all their bases , they may consider parametric , or index-based , insurance . This type of insurance is meant to address particularly hard to insure risks , so it has driven a lot of interest within the client base of Oliver L . E . Soden Agency Corp .
“ Parametric insurance pays out if a specific event occurs , regardless of the actual damage or loss you face . It ’ s based on the chance of that event happening rather than compensating you for the exact amount you ’ ve lost . It is important to note that parametric insurance isn ’ t meant to replace your usual insurance but to work alongside it . It can cover areas that traditional insurance might miss , like specific costs you have to pay out of pocket , risks that are normally not covered or financial losses that happen due to events beyond your control . Think of it like a safety net for specific situations that regular insurance doesn ’ t address ,” Soden said .
2023 Issue 3 | GearedUp
50
Texas Capital Bank Member FDIC NASDAQ ® : TCBI
Policy Changes
Things are constantly changing , making keeping track of law changes and regulations difficult . Policies also evolved significantly after the pandemic . COVID-19 proved that anything could happen , so being overprepared is better than being underprepared . “ COVID shutdowns have made us more aware of the risks that we face inside our clubs . Making sure we have insured all risks ,