• August 1, 2022

Ignorance is risk: why should you know the key people in your business?

Within the insurance industry, the term 'key person' refers to individuals who are vital to the day-to-day running and strategic future of a business. Every company has them, but not every company knows who they are.

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Although key people are often members of senior leadership, or significant decision makers, this isn't the case everywhere. They could be employees with critical knowledge of processes and systems, and therefore difficult to replace.

What are the risks of not knowing your key people?

Simply put, the risks are serious. The sudden loss of an unprotected and unidentified key person, be it through death or critical illness, could result in:

  • Loss of important person and business connections
  • An overdraft facility at risk
  • The need to recruit/train a successor
  • Loss of detailed knowledge necessary to run a business
  • Difficulties in securing finance for new ventures or expansion
  • Loss of existing/future contracts
  • Difficulties in being able to meet loan repayments
  • Loss of goodwill

The implications of these risks are just as significant, consisting of: Loss of sales, loss of profits, reduced turnover, litigation, liquidation, a negative impact on market share and share price, and consequently family tensions and divorce.

How do you identify the key people in your business?

When aiming to identify key individuals, you'll be seeking staff with the following attributes:

  • Someone who directly affects business value - impacting sales, delivery, profitability, growth, product development or other critical value drivers
  • Someone with experience or in-depth knowledge which would be expensive or difficult to replace
  • Someone vital to the vision of your strategic future, and without whom you may not be able to proceed

Individuals who fit these criteria may quickly spring to mind, but it's essential to be thorough. In order to recognise and consider all potential candidates, the following process should be undertaken:

Create a longlist of who is responsible for driving the most value for each of these functions:

  • Leadership
  • Production of service or goods
  • Financial control
  • Sales and marketing
  • Other areas that are critical to business functioning - e.g. IT, or HR

Establish what the consequences would be if any of those individuals were to die or become critically ill, for example:

  • Prevention of day-to-day business running
  • Loss of clients
  • Decreased profits
  • Need to replace systems maintained or delivered by employee
  • Loss of confidence by clients or suppliers
  • Need to recruit and train a replacement
  • Inability to gain new investment or to borrow capital

Identify individuals within your list who would cause the above consequences, and eliminate those who would not

How can Key Person insurance protect your organisation?

You should now have a shortlist of the key people in your organisation, meaning you can employ Key Person cover to protect your business from their death or illness.

Key Person is a type of insurance which pays out a lump sum cash injection to make up for financial loss, or to cover temporary replacement costs, should your key individual die or become incapacitated.

It differs from life insurance in that the business, not the protected person, is the owner of the policy - and the proceeds of a claim go to the business, not the person or their family.

What to do next

Speak to a specialist at Clear by emailing employeebenefits@thecleargroup.com or visit our specialist page below.

Their guidance will help you understand the financial value of your key people, the associated cover that should be in place to protect the business, and how this cover would enable the organisation to maintain momentum and continuity should the worst happen to those individuals.

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