Doug Groves, CEO of EZ Cert Management, talks about ensuring all of a franchisor’s franchises are in compliance with insurance.
Please excuse any typos in this hasty transcript.
Matt Register: Welcome back to the show, Texas Business Radio, texasbusinessradio.com is the website, 844-814-8144 is the phone number. Get your calls in, that’s a 24-hour [inaudible 00:00:27], that means call in now, call in a little bit later, call in the middle of the night. Don’t really have an opinion on it. We’re going to get experts on here to get those questions answered. We’re talking about franchises today, and along with franchises if you have multiple locations all over the country, as a franchisor you have a need to ensure that your franchisees, the locations all over the place, are complying especially when it comes to risk and some of the other liabilities that are out there. We have a very interesting discussion this segment about insurance as it relates to franchises. I’m your host Matt Register. Jay Curry is the one over there in the co-host chair. What do you think, Matt?
Jay Curry: I have to agree with you. If you think about franchising and insurance, and you’ve got 500 spread all over the United … how do you coordinate this and make it cost-effective, which is what franchising is all about? This is going to be a good segment.
Matt Register: Yeah, no doubt about that. Doug Groves is the CEO of EZ Cert Management. EZ Cert Management is a product owned by Program Insurance Group which sells insurance, specializes in selling insurance to franchisees. Doug, welcome to the show, sir.
Doug Groves: Glad to be here, it’s a wonderful day in Houston, Texas.
Matt Register: Tell me a little bit about EZ Cert, because you offer a service to these franchisors that otherwise costs them a tremendous amount of organizational energy, right?
Doug Groves: Yes, sir. Insurance is required in a franchise disclosure document for all brands across the country. They’ll spell out in their franchise disclosure document the requirements that the franchisee must have in the way of insurance to operate the franchise. They line out all kinds of things that you must as a franchisee, so one of those things that they line out is insurance requirements, whether general liability, or property, or workers compensation, or umbrella, or auto, as were covered, they have to disclose that in their FTD, franchise disclosure document. And then as typically insurance does, it renews annually, each year the franchisor has to keep up with the individual franchisees’ insurance. EZ Cert was born to take the responsibility of ensuring for the franchisor that the franchisee actually bought the coverages that were required in the FTD, and do that on behalf of the franchisor.
Matt Register: So they can basically turn this over … The franchisor can basically turn this over to you, and you are monitoring all thousand locations, or twenty-five, however many locations they have, you are monitoring the coverage, you are monitoring the expiration of the policy, you are monitoring all that. You were interfacing with the franchisees to give them reminders and ensure that they keep their insurance up to date. Is that, simplified …
Doug Groves: Yes, EZ Cert will work on behalf of the franchisor to ensure the compliance of the insurance requirements, so the franchisee in the field, whether it’s in Peoria, Illinois or LA, California, sends his insurance certificate into EZ Cert. EZ Cert compiles that information, compares it to the requirements of being the particular brand that that franchisee’s with. And then we report to the franchisor on a monthly basis, giving him, “You’ve got 500 locations were at 80% compliance for your brand, that means 20% of the people are out of compliance.” A lot of times you have a month in there that people are in transition, they’d move their insurance, they’d changed their insurance, they hadn’t bought it yet. So getting up around 85, 90% compliance is a good hit number for EZ Cert. Most brands, when they’re excelling in the particular business that they’re in, that’s the business that they’re in. They’re not trying to be in the insurance business, but you get forced into having to monitor these certificates of insurance.
Jay Curry: So Doug, this sounds kind of simple but the reality is, it’s not. Every state is different.
Doug Groves: Correct.
Jay Curry: You have to track that.
Doug Groves: Correct.
Jay Curry: Because you’re saying, for these ten in Texas, these eight are qualified, but over in Oklahoma it’s totally different and you have to track that too.
Doug Groves: Yeah.
Jay Curry: This can be very complicated for the franchisor.
Doug Groves: EZ Cert is going to monitor your brand. We stay in the continental US, we can do work in Canada but we don’t provide insurance benefits in Canada, so we stay in the continental US. So if you’re a brand and you’re successful, and you’re starting to open up 10, 20, 30, 50 locations a year where everyone has the same insurance requirements, we track that on behalf of the franchisor. So he doesn’t have to use his time and staff to be an insurance guy, he can spend his effort to being a better brand, and we’ll handle the insurance side of it for him.
Matt Register: The interesting part of this is that you don’t charge the franchisor necessarily to be able to do this, right? You can offer it to them as a service, and your Program Insurance Group, which is your insurance selling group, can end up building a package that makes it quicker, cheaper and easier for the franchisees to purchase insurance from you. And you can make money that way and not have to charge the franchisors to track all of their stuff, right?
Doug Groves: Yeah, correct. The Program Insurance Group makes money by pooling all people in the same bucket, and an insurance company likes to have multiple risk of the same type thing, whether you’re hair-cutting or a restaurant or a bar. If we’re underwriting a particular risk, franchisors are a good class of risk for an insurance company. EZ Cert has the ability to bring you 100 or 200 or 300 of the same widget each year. The insurance company says, “We’ll take that risk because we know you can get us 30 or 40 or 50 of them,” so pricing gets adjusted based on the amount of customers that we can pool together. And each year we add 20% of the brand to the system, our total premium volumes go up, and then all of a sudden you’re talking about some significant pricing or coverage discounts, where you get better coverage for the same price.
Matt Register: Sure.
Doug Groves: Or you can maybe get a 15% discount if we can get it to a million dollars in premium, this brand, or we get it to two million, maybe we’ll give you a 30% discount. So ultimately the franchisee wins. He’s not required to buy insurance through the program, but if he does, he has the option of getting benefits.
Matt Register: I like the way this works all the way around. The insurance company wins, because at the end of the day the insurance company that’s writing the policy, if they can get comfortable with one location selling burgers, the next one three towns over is substantively the same risk pattern as the one. So they can get comfortable with one, they can get comfortable with a hundred. And they benefit out it because it spreads the risk. We have the franchisor gets a lot of labor and organizational energy tracking insurance … gets off their plate. Everybody wins out of this, I really really like the model.
Doug Groves: Yeah, it’s what I call a win-win-win situation. The brain wins because they get the work completed that really must be done. They don’t want to do it, brands don’t do a good job at it. It has to be done, it has to be organized. The franchisee wins because he is ultimately able to gather his insurance at discounted rates, or better coverage at discount rates. And then actually we benefit because we get to make these people our customers. We’re all after the same thing.
Jay Curry: That really is a win-win-win.
Doug Groves: Yeah.
Jay Curry: Everybody wins, there’s no doubt.
Doug Groves: Yeah, I like it.
Matt Register: Yeah, no, absolutely interesting. What are some of the insurance requirements of franchises that guys like me and Jay don’t necessarily know about? I know quite often it’s just standard commercially available insurance, but every once in a while it’s something that’s a little different.
Doug Groves: Typically you’re going to run into general liability exposures, a slip and fall type deals, somebody opens the door and the door falls on him. You have property insurance deals, you have worker’s compensation. In all states other than Texas, worker’s compensation is really required. Texas is a little bit different.
Matt Register: Sure.
Doug Groves: Then you have auto exposures, if they have delivery exposures or where are our franchise is based around vehicles, taking things back and forth you have auto exposures. You have umbrella exposures. So usually typically a brand can have anywhere from three insurance requirements to six or seven insurance requirements, and it doesn’t say where you have to buy that insurance. We not want mandatory situations. A franchisee could be buying his insurance from three or four different providers, so now he’s got three or four different certificates coming into the brand for one location.
Matt Register: The main thing, though, as a franchisor, it behooves you to make sure that your franchisees have the appropriate level of insurance, because if something happens, they’re not only going after the franchisee, they’re going to come after the franchisor as well.
Doug Groves: Having additional named insured endorsement requirements on these policies in favor of the franchisor is the whole key, because when litigation comes, when it comes, if it comes, normally they’re going to add the franchisor to whatever litigation party is going to be happening. So you’re going to get to go to the party. You might as well be trading onto the franchisee’s insurance coverage first, before we trade on our insurance policy.
Matt Register: It makes all the sense in the world. Doug Groves, CEO, EZ Cert Management. Certmgmt.com is the website, we’re going to have that linked right from texasbusinessradio.com, if you’re driving and can’t take notes. Doug, thank you for joining us.
Doug Groves: Glad to be here.
Jay Curry: Great service.
Matt Register: We’re going to go pay a couple of our own bills. We’ll be back right after this with a whole lot more franchising here on Texas Business Radio. Don’t go anywhere.
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In addition to hosting "Texas Business Radio," Matt is an investment banker and serial entrepreneur from Montgomery, Texas. He is the owner of RREA Media and Register Real Estate Advisors and a Managing Director and Principal at Corporate Finance Associates. He has a BS from the United States Military Academy at West Point and an MBA from Rice University in Houston. You can read more about Matt HERE.