Franchise

Franchise is a common term in international trade and marine insurance, referring to a provision where the insurer does not compensate for losses to the insured subject matter below a certain percentage or amount, but once the loss reaches or exceeds that percentage/amount, the insurer compensates in full (rather than only the excess portion). It is commonly used in cargo transportation insurance, hull insurance, etc., especially for fragile, easily damaged, or high-value goods. Note: A franchise differs from a deductible; the former is an 'all-or-nothing' mechanism, while the latter deducts the deductible amount and pays the remaining portion. Additionally, a franchise is usually expressed as a percentage, sometimes as a fixed amount. Foreign trade practitioners need to specify in the contract the exact franchise value, the calculation basis (e.g., invoice value or CIF price), and whether it applies to all risks or specific perils to avoid claims disputes. Unlike a 'relative franchise,' an 'absolute franchise' never compensates the franchise portion under any circumstances, whereas a relative franchise compensates in full when the loss exceeds the franchise. A correct understanding of franchise helps companies reasonably choose insurance plans, control costs, and protect their interests.