Keyman cover
1 October 2008
Research recently highlighted in the Financial Times suggests that the “average chief executive” has just under five years experience in their current position.
So, what happens when a company unexpectedly suffers the loss of a key executive or specialist with unique experience?
While keyman cover has been around for some time, Cathy Toomes, active underwriter for Kiln Life, says today’s economic climate has prompted renewed interest in the product.
“Businesses are looking long and hard at how they can not only cut costs but also protect themselves,” she says. “The ability to cushion the blow of the loss of a vital member of staff is growing in appeal.”
Cover can be structured in a variety of ways. It can enable firms to cover losses and fund the search for a successor. It can also be taken out by business partners to facilitate buying a deceased associate’s shares.
The cover isn’t just about losing leadership, or the potential effects on company market value. It can help protect firms that lose professionals with experience critical to the business and its operations.
"Take the wine and beer industry for instance,” says Toomes. “You may have an experienced member of staff who is vital to the production or quality control process; and they’re not easy to replace. A keyman product may well provide the funds to seek a replacement while making up the loss of revenue in the short term.”
Given the nature of the cover, it’s a specialist underwriting task and requires a combination of medical and financial underwriting disciplines.
“The difficult issue is how you quantify the value of someone to a business. Take Richard Branson, for instance: how do you value his contribution to the Virgin business?" says Toomes. "It’s a case of using your underwriting experience to understand the financial impact a firm would suffer in losing a particular member of staff."
Last updated on 21 Dec 2009
