Author: Kaya Stanley, Board Chair and CEO, CRMBC
Effectively managing workers’ compensation is a common challenge for multi-unit franchise owners. With numerous employees across different locations, it’s essential to have an insurance solution that protects your workforce, controls costs, and improves operational efficiency. One option that has become increasingly appealing for franchisees is joining a Self-Insured Group (SIG) like CRMBC.
SIGs offer a collaborative workers’ compensation approach, allowing businesses to pool resources and share risk. This model provides financial and operational advantages over traditional insurance or high-deductible policies for multi-unit franchise owners, especially in industries like restaurants.
Here are the top five benefits of SIGs for multi-unit franchise owners:
1. Cost Savings
One of the most compelling reasons franchise owners consider joining a SIG is the potential for significant cost savings. Unlike traditional insurance policies, where premiums cover claims, overhead, administrative fees, and profits, SIGs eliminate many expenses.
In a SIG, members pay into a collective pool to cover workers’ compensation claims, administration costs, and risk management services. This leads to lower premiums, as the overhead typically goes to the insurance carrier is reduced. Additionally, if claims are lower than expected, any surplus in the group’s fund can be returned to members as dividends or reduced future contributions. This creates a financial incentive to maintain safe workplaces and reduce claims.
These savings can add up significantly for multi-unit franchise owners, providing more financial flexibility across locations.
2. Greater Control Over Claims and Risk Management
Workers’ compensation isn’t just about covering claims; it’s about managing risk effectively. In a SIG, franchise owners gain greater control over the claims process and the overall workers’ compensation program. This means you can choose the third-party administrators (TPAs) you work with, the medical providers who care for injured employees, and the strategies used to manage claims.
This customization allows franchise owners to align their programs with company values and goals. Whether you want to implement an aggressive return-to-work program or reduce litigation costs, SIGs’ flexibility gives you the tools to meet those objectives.
In contrast, traditional insurance carriers often dictate how claims are managed, usually for the carrier’s benefit, limiting your ability to tailor the process to your needs. With a SIG, you’re not just a policyholder but an active participant in managing your workers’ compensation program.
3. Improved Cash Flow
For multi-unit franchise owners, cash flow is critical. The ability to manage expenses across several locations is often the difference between profitability and financial strain. Traditional insurance policies, especially those with high deductibles, require significant upfront payments in the form of premiums or collateral. These large, lump-sum payments can strain cash flow, particularly for businesses with seasonal fluctuations or high turnover rates.
In a SIG, you pay claims as they occur rather than pre-funding them. This allows you to spread your workers’ compensation costs over time, improving cash flow. Instead of tying up capital in large collateral deposits or paying hefty premiums upfront, you only pay when a claim is made. This pay-as-you-go structure can significantly improve cash flow management for franchise owners, allowing you to invest in other parts of your business or maintain a more predictable financial position.
4. Increased Financial Flexibility
Another significant advantage of SIGs is the reduced requirement for collateral. High deductible policies often require franchise owners to post a substantial letter of credit (ILOC) as collateral to secure their obligations. This can tie up capital that could be used for expansion, renovations, or other growth opportunities.
SIGs like CRMBC post the required collateral on their members’ behalf, eliminating the multi-unit operator’s need to post collateral deposits. Your working capital stays within your business, allowing for greater financial flexibility. In an industry where margins can be tight, this is a crucial benefit for multi-unit franchisees who need access to capital to remain competitive.
5. Long-Term Stability and Predictable Costs
Insurance market fluctuations can cause significant headaches for restaurant operators, especially in hard markets where premiums can skyrocket. SIGs provide long-term stability, as they are less affected by these market conditions. This helps franchise owners avoid sudden increases in premiums, offering more predictability regarding budgeting and financial planning.
Additionally, SIGs benefit from group purchasing power. By pooling resources with other franchisees, members can negotiate better rates for claims services, medical providers, and risk management programs. This collective approach can lead to lower costs overall, providing more value to each member.
This stability and cost predictability offer peace of mind for multi-unit franchise owners managing several locations, knowing that workers’ compensation expenses won’t be subject to sudden and unpredictable hikes.
Conclusion: Is a SIG Right for Your Franchise?
For multi-unit franchise owners, particularly in the restaurant industry, joining a Self-Insured Group like CRMBC can offer significant advantages. From cost savings and better control over claims to improved cash flow and long-term stability, SIGs provide a viable alternative to traditional insurance or high deductible policies.
As with any business decision, it is essential to weigh the benefits against your specific operational needs and financial situation. If you want more control over your workers’ compensation program and reduce your overall costs while maintaining flexibility, an SIG may fit your franchise.
As the restaurant industry faces rising costs and operational challenges, exploring alternative risk solutions like SIGs can help franchise owners create a more sustainable, cost-effective workers’ compensation strategy. To discuss if a SIG is the right move, contact CRMBC today.
Kaya Stanley is an attorney, published author, business owner, and highly sought-after strategic turnaround expert. Ms. Stanley serves as CEO and Chairman of the Board for CRMBC, the largest restaurant workers’ compensation self-insured group in California, and she is the Licensee for TEDxReno, an independently organized TEDx Event.
Throughout her 22 years of practicing law, Ms. Stanley has served as outside counsel for Wal-Mart and Home Depot. She was voted one of the country’s “Top 25 OZ Attorneys” by Opportunity Zone Magazine and published a best-selling book called “The Employer’s Guide to Obamacare.” Before that, she earned her master’s degree in social work and public policy, after which she worked with at-risk girls in Detroit and lobbied for women and families.
