As the UK economy enters a worrying few months it’s even more important for employers to ensure that all their risks are identified and insured…
Most businesses spend an awful lot of time thinking about risks, and the prudent ones take action to cover excessive risks with appropriate insurances.
Some of those insurance risks are obvious – for instance liability, building, business interruption, and cyber cover. These are important and necessary policies in 21st Century business, and responsibility for ensuring that cover is both adequate and in-place usually falls to the Finance and/or Operations side of a business.
Many organisations also recognise that “people” risks are a valid concern. Good employers therefore set out to provide their workers with a range of quality employee benefits to attract and retain the right talent, and to ensure that ill employees receive treatment quickly to curtail periods of sickness absence. The decisions around employee benefits offerings are usually made by the employer’s Human Resources team.
In this way businesses ensure that their financial and people risks are assessed, mitigated, and insured (where appropriate).
Or do they?
Key person risks
The reality is that the above siloed approach to insurance placement can lead to one significant risk being overlooked, and that risk relates to those people central to your business.
For key person risk is very real indeed, with insurer Legal and General* estimating that more than half (52%) of small and medium sized businesses would cease trading in under a year if a key person died or became critically ill.
Another provider – Royal London** – suggest that just 22% of small businesses have any form of keyperson cover in place.
These two findings indicate that many businesses are potentially exposed to a massive – and often uninsured – risk should something happen to a key individual.
So how should businesses assess their risks in this area? The first challenge is likely to be identifying which individuals are your “key” people.
The simplified definition below might provide a useful starting point in this exercise:
“Anyone whose death, disability, or absence would impact ownership, profits, client relationships, business functions or the wider future of your organisation.”
Is cover in place?
Having identified your key people, the next stage is to assess the risk of losing such an individual, and what (if any) insurance cover is already in place to protect the business from that loss.
As part of this process, it is important not to confuse employee benefit provision with key person insurances. Employee benefits typically provide support direct to the employee and his/her family, whereas key person cover is designed to provide funds to enable the business to continue trading, to maintain profit, fund a replacement, pay off a bank loan, or smooth an orderly transfer of business ownership.
Own the risk!
Finally, it is important to decide which departments will take responsibility to ensure that this important class of cover is always in place and appropriate at all times.
It is also important to seek some expert support. The Partners& specialist team is on hand to help you assess the risks, highlight potential solutions, and place the cover as needed. For more information on our offering please visit this page of our website.
Lastly, it is always worth remembering that the loss of a key person can be a potentially devastating blow for businesses at any time, and no more so than in the uncertain economic months immediately ahead. It follows that reviewing this significant people and business risk should now be a top priority for your business.
*Legal and General State of the Nation report 2022
**Royal London webpage – Business Protection Opportunities