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Neil McCarthy: Start-ups soar yet business protection remains woefully low

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In 2013, Britain had a record year for business start-ups with 502,068 businesses launched, comparied with 482,224 in 2012 and 440,600 in 2011.

While it is true many businesses are started by women, graduates and people immigrating to Britain, the majority of entrepreneurs are male and in their 40s.

Most small business employer owners and co-owners fall into the 35-44 (25 per cent), 45-54 (31 per cent) and 55-64 (26 per cent) age categories; the proportion in older cohorts is much smaller, just 7 per cent over 65. Other self-employed individuals have a slightly lower age profile than owner managers and are more likely to be in their 30s.

The critical point for our profession is that most entrepreneurs and self-employed people start their new careers at the point when they are most likely to have the greatest business and personal financial commitments, and at a point when their finances are often very stretched.

Research conducted a few years ago suggested that fewer than 5 per cent of businesses have keyman insurance.

There are a number of reasons that keyman take up is low. The first, and I would guess biggest, is due to a simple constraint on funds. Starting a business can put a significant strain on finances, and insurance of all types is often the last consideration.

The second is that keyman insurance presents some unique problems for advisers, the first being, who is the adviser?

Both sides of the fence

Ironically, the needs of an entrepreneur often fall between advisers. By this I mean an entrepreneur could have raised finance from a range of sources such as a conventional bank, peer-to-peer lender, business angel, family or, as is often the case, a mortgage provider.

An accountant or solicitor could have been involved in establishing a company, but may not have been involved in arranging the finance. Many of the business insurance needs whether commercial insurance or PI cover are provided by GI brokers who very often will not mention keyman as it is a “life” product.

The key, therefore, is when you hear that a client is starting his or her own business, don’t assume someone else has had the conversation about business continuity planning and keyman.

The next issue is placing the potential client on risk, which can be challenging.  It is unlikely to be their highest priority and pinning them down might be tortuous; if they have lifestyle or heath conditions the extra requirements may also mean that they just abort the process.

Many readers will now be thinking; well if it is going to be this difficult then why bother?

First, and most importantly, for someone whose income is now coming from their own hard graft this could be the most important product they ever buy as it will often be the only protection they have to cover all their financial commitments. Second, it does not have to be difficult, if you spot the opportunity.

The customer values the experience and expertise an adviser brings – namely, the personal advice to help ensure that appropriate solutions can be put in place. We are seeing an increasing trend of advisers fully outsourcing the administration of large cases where they want the complexity of the medical and often the financial evidence dealt with by expert third parties. This means more time for the adviser to focus on the higher valued communications with the client.

Neil McCarthy is sales and marketing director at Direct Life & Pension Services

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