Business Insurance: Protection From Key Personnel Loss

Business Insurance: Protection From Key Personnel Loss

There are quite a lot of risks that businesses have to face. The loss of clients is an obvious red flag, tailoring products and marketing strategies to re-capture their attention and draw them back is hugely important. But what happens when you lose a key member of your personnel? The effect could be just as damaging. The good news is that with the right business insurance, protection from such a situation is possible.

Insurance is, of course, a critical part of life these days. From car, home, to life insurance, it’s something all of us are very familiar with. In the business world, too, insurance policies are needed to protect companies against damage to goods in storage or in transit, against break-ins, and other mishaps. But a truly comprehensive business insurance policy should also protect against the financial consequences that may come with unexpected events.

At Hamilton Brokers, we have been helping businesses in the ACT region tailor their policies so that, through their business insurance, protection is provided to cope with the loss of a principal staff member – someone vital to their operation and for whom a replacement cannot simply be found waiting in the wings.

But just how important is it to include the loss of staff in a policy? And how does the policy work? Unfortunately, there are many ways in which a business can suffer other than the obvious loss of a colleague and friend.

Why Include Loss of Personnel Protection?

Imagine your best-performing sales executive who has been with you for 10 years, has developed an intricate network of contacts in that time, and enjoys an enviable reputation for keeping one step ahead of the competition.

Now, imagine what might happen should you lose that sales executive. The world is filled with uncertainty, with anything from an unexpected medical condition or an accident forcing your star man or woman out of your business’s sales team.

There are three main types of occurrences that may do this:

  • Sudden death – either by accident or illness
  • Permanent disability – either by accident or illness
  • Critical illness – like cancer, heart attack, or stroke

Should any of these occur, then the likelihood is that future (and even current) business agreements may be lost as finding immediately someone who is capable, up-to-speed, and as effective in an unfamiliar role, would be very difficult.

With that in mind, your business stands to lose considerable revenue – both in the short and medium term – in several different ways.

  • A suitable replacement could take some time to find because recruitment procedures take time
  • Sales figures and profits could be hurt until that replacement is found
  • Productivity may drop while the void is unfilled
  • Training is needed to ensure the newcomer becomes fully versed in the project
  • Lower sales and lower revenue may affect your business’s credit rating
  • Goodwill could be lost for good

With the right business insurance, protection against these losses in revenue and the threat to your business’s goodwill can be provided, greatly reducing the potential damage that your business might suffer.

How It Works

Covering the loss of key personnel is often offered as an option as part of a general business insurance protection policy. Since every business is different, a detailed analysis of your company is carried out before a tailored policy is drawn up.

Part of the analysis is to identify those critical members of your operation whose loss would cause the most damage, and assessing precisely how great that loss would be in financial terms. Once this is done, your business is then covered for sums up to that projected loss. This means that a lost contract, a drop in sales, or any other negative effect can be countered with an injection of funds, while you take the time necessary to find, train, and install a suitable replacement.

As important as every staff member is to your operation, not all of them are going to be identified as ‘key’. Generally, the most significant positions are:

  • The proprietor
  • The manager
  • The chief financial officer
  • Senior accountants and financial analytics personnel
  • Programmers of company systems or products
  • Sales personnel
  • Technical specialists vital to product development

These positions are occupied by three types of people.

  1. Those personnel who play an active role in building and developing the degree of business being done, handling client lists, and in managing the projects developed to do so.
  1. Personnel who play a key role in enhancing your business’s goodwill. What they offer is usually something inherent in their personalities, their human attributes that can inspire confidence in a team at work and attract customers through their positive outlook and productivity.
  1. Key financial figures who can improve the credit standing of the business. These are usually financial wizards, skilled economists who can analyze business data, and investors, too.

There are some alternatives to the insurance option, of course. The most obvious is diverting revenue over a prolonged period of time into a reserve, accumulating a lump sum that can be used to absorb the after-shock of losing key personnel.

But this is not a particularly cost-efficient option partly because the funds diverted could otherwise have been put to better use, and partly because it would take considerable time to build up the required reserve; meaning, the risk of loss remains despite your business’s best efforts. As a result, the insurance option is by far the more cost-effective one.

Business Insurance Protection through Hamilton Brokers

For over 40 years, Hamilton Brokers has been protecting people in ACT with a range of life and general insurance packages designed to meet their clients’ needs. But we have also been providing specially tailored protection to businesses of various sizes, too.

We work with clients closely to identify the most suitable coverage for them, guarding them from the financial damage that can come with everything – from the risk of lost stock (whether through fire, theft or some other mishap) to the loss of key personnel.

Having business insurance protection is crucial. For more on our business insurance policies and the protection we can offer your business, check out our website, fill out our online enquiry form, or contact us directly at (02) 6124 1250.

 

This information may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it.