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Cover the business market

Right now, there is a massive level of activity and interest in the protection market.

We are emerging from the new regulatory environment, there is depolarisation and we are already seeing bespoke arrangements between product providers and distributors, with protection often seeming to be at the top of the agenda.

In addition the critical-illness insurance landscape is changing as providers seek proof of proposed improvements in diagnostic techniques and yet continue to provide guaranteed premium rates. Income protection continues to baffle and yet may see a revival in the light of regulation and what is happening with critical-illness cover.

In the mortgage protec-tion market, we are witness- ing the advent of online new business processing and reflexive underwriting, allowing costs and premiums to be cut. Then there is tele-underwriting, a very recent feature in our market but one which is likely to become very big. Yes, technology has arrived in style and everybody wants a piece of the action.

Simultaneously, there are elements of the market which appear largely ignored – business protection being one. There are several areas of business protection to be considered such as keyperson cover, shareholder protection, and business loan cover.

But the major concern for many of us is that while many businesses will readily insure plant and machinery and organise pension schemes, they fail to recognise the financial implications of failing to plan sufficiently for other business protection needs.

In terms of keyperson cover, we are talking about covering businesses against loss of profits following the illness, or death of a key employee, someone whose imp- ortance to the business is often underestimated.

Losing a top salesperson when it is least expected can be devastating for a firm of any size and even more so for the small to medium enterprise.

It can take time and money to find a suitable rep- lacement. Production may have to stop, new deals left uncompleted and loans may be difficult to obtain. A business could easily close quickly if the funds are not in place to support it through those difficult early months.

A number of products, written on the life of the employee but owned by the company can provide income in the case of disability or a lump sum in the case of a critical illness or death.

When it comes to shareholder protection, consider a situation where a business is owned by a number of individuals and one dies without making suitable arrangements for what happens next.

The shares may be inherited by a spouse whose presence in the business is neither welcomed nor of any value. This can only cause turmoil, disruption and potential damage to that business.

The spouse could have trouble selling the shares for a fair price or could even sell them to a competitor.

It would be far better to make plans to ensure that the remaining partners have the right to buy the deceased’s shares, with the funds going to the spouse, ensuring minimal effect on the business.

Careful planning, some legal documentation in the form of cross-option agreements and a number of term assurances written in trust will ensure the objective is met.

Businesses borrow funds for a number of reasons but lenders will usually insist on appropriate term cover on the life of the proprietor. This is straightforward but we are often talking about big sums assured having to be arranged in very short timescales. The cover is secondary to the central issue here and yet, without it, the funds may not be released.

Now that is the briefest of summaries of the main elements of the business protection market. Each is equally worthy of an article in its own right. It seems straightforward and yet many advisers seem to be less keen, or well equipped, to address the needs of a community of some 3.5 million businesses in the UK. Only a small minority of anything between 10 per cent and 20 per cent of businesses have any form of protection so why are not we meeting this need?

Some will view it as complex – we are talking big sums assured, often older and sometimes unhealthy clients with more complex underwriting issues.

Dare we trust a close and valued client relationship to an insurer which might not be as competent on financial underwriting or inclusive in medical underwriting terms? Why risk that? Then there are complications when shareholder plans have to be written in trust and cross-option agreements produced. Speed is often of the essence and yet the new business process can irritate beyond belief.

The good news is there are a number of insurers which understand the issues. Feedback shows that you want support with technical and legal documentation.

You want access to the most competent underwriters who specialise in big case handling and who will talk you through the process before and after you see the client. You want support through quality literature and case studies. You want sales support that is always there, keeping you up of market devel- opments.

We talk a lot in this industry about the protection gap and yet seem to concentrate on meeting mortgage protection needs.

Well, there is more to it than that. We can all help to fill that gap so the next time you call on a business client, just ask about that keyperson, the share arrangements, the business loan – and do not be afraid to ask an insurer for advice if it is required.


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