The death or injury of a key member of personnel could spell disaster for business - making key man an important insurance requirement.
The past weeks have seen a string of high profile illnesses and accidents - dancing star Michael Flatley recently cancelled tour dates after falling ill with a mystery virus, Barbara Windsor broke her wrist and sprained her ankle in a fall during filming, and England cricketer Marcus Trescothick returned home from the England Ashes tour after suffering from a stress-related illness. Such incidents hold up filming, affect ticket sales, merchandising costs and lead to event cancellation – a major headache for fans and organisers alike.
But outside the glittering world of celebrity, an accident or untimely death can potentially cause just as many problems for a business, making key man insurance a consideration – and not just for large companies.
Key man life insurance works like individual life insurance in that if the insured dies the policy pays out subject to policy terms and conditions. Instead of an individual insuring himself or spouse or partner, however, the business owns the policy and pays the premium. If the insured dies, the business is the beneficiary and receives the policy payout subject to policy terms and conditions.
“This type of insurance is important where a key individual is responsible for a large percentage of the company’s turnover,” says Tim Prifti, active underwriter at Kiln Accident and Health. “For example, a partner in a law firm who generates huge fees from his client base, or a computer programmer with specific product knowledge that cannot be easily passed on to another person. In the event of death or disability of either of these examples, the consequences financially for a company could be severe.”
Charlie Boyd, Head of Accident & Special Risks at St Paul Travelers, comments: “Partnerships and limited companies are under increased regulation and two of the areas they are concentrating on are risk analysis and disaster recovery. Any organisation that is heavily reliant on the particular skills or contacts of a few key individuals is exposing themselves to an inherent risk and hence a potential disaster.”
He continues: “Key man protection can help to provide organisations with a bespoke solution for laying plans to mitigate the financial impact due to loss of income and the costs of re-establishing the company's position should the key man die or become disabled.”
Naturally, the show must go on if one of the stars of any production is incapacitated in some way – but key man insurance can help soften the financial blow. “For a Hollywood blockbuster, losing a major star from the schedule could mean losses of more than $100 million, in addition to loss in production costs, etc,” says Prifti. “Similarly, if a company loses one of its main people and the clients take their business elsewhere, the partnership will suffer a partial dip in revenue. Key man insurance could help the company through the interim period until a new partner gets to grip with the client base.”
The growing awareness and knowledge of key man products is reflected in the increased capacity devoted by Lloyd’s syndicates to this class of business. “Lloyd's underwriters recognise that no two businesses are the same and as such they offer cover that is tailor-made to the insured's particular business needs,” says Boyd. “We are happy to work with organisations to produce a product that fits their particular requirements.”
