FranchisePerils, a Division of Executive Perils, Offers Cyber Package for Franchises

PRODUCT: Cyber network security and privacy insurance for franchisors and franchisees

COMPANY: FranchisePerils, underwritten by Arch Insurance Co.

BEST RATING: A+ (Superior)

AVAILABILITY: Coverage is available on an open-brokerage basis.

FOCUS: Franchisors are particularly vulnerable to cybercrime because the data they collect through their systems faces exposure at multiple entry points: each computer terminal or point of service terminal at the franchisor headquarters and the locations of franchisees, affiliates and vendors, according to law firm Gray Plant Mooty. The attorneys advise franchisors “to help franchisees to protect the system and network” in order to reduce their exposure to vicarious liability claims.

In response, FranchisePerils, a division of Executive Perils Insurance Services, has introduced eFranchisorSuite™, a cyber protection package designed exclusively for the franchise industry. The cyber coverage package complements the company’s FranchisorSuite® policy—which includes directors & officers, franchisors malpractice with vicarious liability, employment practices with joint employer, and fiduciary liability—giving franchisors access to one insurance company for themselves and their franchisees. ExecutivePerils has offered cyber coverage since 1997.

“We wrote two policies for the franchisee community because we could not find anything in the market that we could recommend without reservations,” says Peter R. Taffae, managing director, Executive Perils Insurance Services.

Bob Bregman, senior research analyst at the International Risk Management Institute, says he is “unaware of any other program of management liability and errors & omissions liability for franchisors that contains all of these coverage components.”

The FranchisePerils package provides three benefits for franchisors, Bregman says. First, rather than buying three distinct blocks of coverage—a management liability form for D&O, EPL and fiduciary liability coverages, a cyber form and a miscellaneous E&O form—the franchisor can obtain all these coverages in one package for “a lower total premium than if these coverages were bought separately,” he explains.

Second, the package is franchisor-specific, affording much broader coverage for professional acts compared to what a miscellaneous E&O policy provides. “Many times, franchisors are insured under generic miscellaneous E&O policies, which are not expressly written to cover franchises,” Bregman says.

Third, a franchisor-specific package written by a single insurer eliminates “gray-area claim situations,” Bregman points out. “If you have those policies written by two or three different insurers, you may end up with a finger-pointing problem where one says, ‘It’s your claim,’ and the other says, ‘No, it’s your claim.’”

UNDERWRITING: The policies are designed to protect franchisors and their directors & officers, and eFranchisorSuite provides 10 compulsory coverages: internet media liability, network security liability, privacy violation liability (all liability insuring clauses include vicarious liability sublimits), network business interruption, data loss coverage, RansomReward™ (protection for both first- and third-party liability resulting from acts of cyber terrorism), security breach notice coverage, franchisor vicarious liability, Rapid Reputational Response™ (advice and assistance with communications strategy and crisis response) and Personal Asset Protector™ (D&O coverage for non-indemnified network security and privacy breach-related litigation).

The eFranchisorSuite can include all franchisees with a separate limit of liability, and can include franchisees without scheduling.

Other features include full coverage of Federal Trade Commission-mandated actions to recover from a cyber breach, full franchise disclosure document coverage, separate self-insured retentions for franchisor and franchisees, no bankruptcy exclusion, up to 15 limit reinstatements and dedicated franchise industry claims counsel. Policyholders can request a pre-approved legal counsel firm.

The product also includes an 80/20 hammer clause, meaning “the carrier will pay 80% of the amount in excess of a proposed settlement that the insured does not want to accept,” Taffae explains. Policyholders can earn reimbursements through proactive prevention behavior.

As part of the package, policyholders also receive crisis plan templates and training modules. Within 48 hours of policy inception, policyholders are introduced to pre- and post-breach service partners: WhiteHat checks curability of breaches; QuietAudit provides assessment; Navigant provides dispute consulting; TransUnion provides credit protection; NetDiligence provides breach management services; and Experian provides data and analytical tools.

Limits up to $25 million are available. Minimum deductible is $15,000.

MINIMUM PREMIUM: $15,000. “We often tie in the limits with FranchisorSuite to lower the premium,” Taffae says.

TARGET: Franchisors and franchisees of any type. No industries are automatically excluded.

COVERAGE TERRITORY: All U.S. states.

CONTACT: Peter R. Taffae, managing director; Executive Perils Insurance Services, 11845 West Olympic Blvd., Suite 750, Los Angeles, CA 90064; 310-444-9333, ext. 100.

Ronimarie Acord is an IA contributor.