You insure all of your physical assets, your premises, IT equipment and vehicles; surely it will follow that you’ll want to protect your most important asset… your people? It’s all too easy to focus on tangible assets when you consider risk management. Quite often the risk of losing a key employee, shareholder or partner is overlooked, despite the huge impact this could have on the future of your business.

Alex Rowe, former joint MD of laundry firm Cornish Linen Service Group, knows all too well how important it is to protect your business’ people. When Alex suffered a stroke it forced him out of work for six months. Luckily his business had prepared for the potentially devastating fallout by taking out key person insurance.

The policy paid out a lump sum of £250,000 to compensate for the losses incurred during his prolonged absence. Alex wants other companies to be as prepared, and so has shared his thoughts with us…

Review the risks your business faces

“During a review of our business strategy, we identified the major threats that could put us out of business or seriously damage our prospects. It became clear that if either I or the other managing director fell ill or died the business would face major difficulties. Without our specialist knowledge and contacts the profitability of the business could be at risk. Alongside this we reviewed our insurance protection and while we’d insured things like our vehicles, we’d failed to insure the company’s most vital asset – its key people.”

Reduce the risk

“We looked at ways to lessen the risk such as ensuring other staff members could cover our roles, but the problem is, most operation manuals are difficult to write, harder to understand and rarely kept up to date. So we decided to take out an insurance policy, known as key person insurance. This aimed to compensate the business in the event of the loss of a key member of staff for a prolonged period. Together with Jelf, we worked out the level of financial cover needed to compensate for the anticipated drop in profit or costs incurred in providing a temporary replacement.”

Put a plan into action

“When I fell ill, our recovery plan was put into effect. Because we’d already spent time forecasting the impact, the policy was activated in no time and the insurer paid out within eight weeks. In my absence the business was unable to secure many new business deals so the lump sum of £250,000 helped to maintain the business’ profitability. It also covered the costs of providing temporary staff to help the business cope.”

While you don’t want to think about these types of events and of course hope they never happen, it is always best practice to be as prepared to react as you can be. In reality the cost of key person insurance isn’t high when you consider the level of protection it can bring in the face of this type of risk.

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