insurance compliance

Out of Necessity, Insurance Was Born

Necessity is the mother of innovation. 

If the need isn’t there then typically things do not progress beyond a certain point. Such is the same with insurance. The concept of insurance has been around for a long time but it wasn’t formalized until a massive fire spread throughout London in 1666, burning over 13,000 houses. 13,000 uninsured residents had nowhere to go and certainly didn’t have the means to rebuild their houses. So what do you do? 

After 15 long years of figuring out property insurance guidelines, they finally organized an insurance company, Insurance Office for Houses. The company existed to offer homeowners insurance during that time. 

What’s the Point? 

I think it’s important we understand why insurance exists in the first place. The inception of formalized insurance came in a time of need. Homeowners were displaced from their homes due to a massive fire. After creating the first insurance company, homeowners for the first time were able to finance risk through the payment of premiums. 

Let’s break it down real quick: 

  • The risk here is homeownership
  • The hazards are many, such as a lighting strike (this is 1666, I almost said electrical surge)
  • The peril is fire. 

Managing Risk 

Insurance has been established as a way to finance risk. Now companies needed to figure out how to mitigate risk. If they don’t mitigate risk properly then their insurance rates will continue to rise until it gets to a point where it is no longer affordable. 

As a franchisor, you have insurance requirements within your FDD which outline what the franchisee needs to have to operate. 

Here are a few standard insurance requirements for your franchisees: 

  • General Liability
  • Commercial Auto 
  • Workers Compensation
  • Umbrella

To verify that every one of your franchisees has insurance you go through an insurance compliance process. There are a few existing insurance compliance processes that exist today but they are all fundamentally flawed.

Here are a few ways to verify insurance for your franchisees: 

  • Manually collect and review certificates of insurance in house 
  • Outsource to a third party compliance company to automate the processing of certificates for a hefty fee
  • Use a free third party compliance company that processes certificates

Fundamentally Flawed 

Okay, let’s get to the flawed part that I so cleverly put in there earlier. You’re asking yourself, how they are flawed. Here is verbiage that comes directly from the standard certificate of insurance that is widely used, not only in the franchise industry but everywhere: 

  • Confers no rights to the certificate holder (franchisor)
  • Not a contract
  • Guarantees nothing

I’m not making this up. Aside from the language on the actual form, IT’S A PDF DOCUMENT!!! A pdf can be easily falsified. Don’t believe me? Check out just a quick google search: 

Now that you can see the problem with the certificates of insurance, no matter what solution you’re using currently, they all still revolve around the same problem, a certificate of insurance. By collecting certificates of insurance you’re getting a false sense of security, assuming you’re mitigating risk but ultimately there is no verifiable proof that the document is 100% accurate for the duration of the policy period. 

Conclusion 

Insurance certainly has come a long way since 1681 but there are a lot of things that haven’t changed. 

The fact that we currently do not have a real-time solution to properly mitigate risk is beyond me. It’s something I certainly am here to solve as this is why rikor was born. 

Necessity is the mother of innovation.

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