By Daniel Hunter

More than half (56%) of small and medium sized companies (SMEs) would cease trading if they lost one or more key people to illness, long-term incapacity or death, yet just one in six (17%) have insurance in place to protect against such a loss, according to the latest research from Scottish Widows.

At the same time, over three quarters (79%) of SME respondents believe there is at least one employee in their organisation whose loss through death, critical illness or long term incapacity would seriously impact the profitability or survival of the business. Despite this risk, 77% admit to never having sought any advice on business protection insurance.

This worrying trend is set against a rise in the number of companies with liabilities (such as business loans, mortgages and overdrafts) from 32% to 40% in two years, coupled with a small increase in the number of firms from 32% to 35% with liabilities but no financial plans in place should they lose a key person.

SMEs are operating in an uncertain economic environment and owners and directors are focusing on day-to-day challenges. Nearly 70% of companies identified ‘delivering on commitments and promises to customers’ as the most important aspect of their business and top of the list for a third (32%) of firms was the need to cover their fixed overheads.

In contrast, insuring against the death of a key person was picked out by just 3% as their biggest priority. The results were almost identical when it came to insuring against a key person suffering a critical illness or long-term incapacity.

Over three quarters of respondents to the Scottish Widows Business Protection Report are an owner, founder, partner or all three of the company, and 82% are micro businesses made up of fewer than ten employees. With such small teams predominant within this business demographic, the loss, either temporary or permanent, of just one member of staff can have an overwhelming impact on an organisation’s ability to operate and maintain continuity of business. Many firms feel the likelihood of such an eventuality is relatively low, however, of the 12% that have been impacted, 45% said they suffered a loss of revenue and 55% were affected by the loss of expertise.

“Attracting customers and keeping them happy should always be a company’s priority, likewise insuring premises and the equipment that keeps it going," Katya MacLean, Protection Specialist at Scottish Widows, said.

"However, while business protection insurance for staff is rarely a priority, its absence can be the biggest single risk to the profitability and even the very existence of a business — especially for small and medium sized companies where the relative impact will be that much greater.

“Businesses need to strike a balance with their priorities. They can survive without a photocopier, for example, for a short period but the majority would be in far greater difficulty in both the short- and long-term if they were to lose one or more of their key employees.

“Companies need to look carefully at succession planning and all the risks posed to a business regardless of how likely they are to happen to ensure they can continue to meet what they consider their key business priorities, whatever the eventuality.”

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