UK businesses are being hit hard by the recession, and should be doing as much as possible to protect themselves; however research from Scottish Widows reveals that businesses are not doing enough to protect themselves from the unexpected.

The research, which surveyed over 500 UK businesses, found four in five (81 per cent) were dependent on a key employee whose loss would seriously impact the profitability and/or survival of the business. Despite this 67 per cent of businesses fail to have this key employee insured, leaving them exposed to a significant loss in profit as a result of their departure through illness or death.

This lack of protection is surprising as the research shows three in five UK businesses without key person insurance (59 per cent) fear they would not survive the loss in profit if a “key person” such as an employee, partner or director were lost, while 11 per cent have not even considered how it would affect them. When it comes to employers’ priorities, they rank insuring office equipment such as photocopiers and printers higher in critical requirement to the company (29 per cent) than ensuring critical illness cover for key persons (13 per cent.)

For those businesses that have not taken out any insurance (such as life cover or critical illness cover) to cover the cost of losing a key person, director or partner, a third (32 per cent) don’t see the value of it, 29 per cent have not thought about it, 19 per cent think it would be too expensive, and 5 per cent didn’t even know if they needed it.

Richard Jones, protection market director at Scottish Widows explained: “Staff can be the greatest assets in a business but these findings paint a worrying picture. It is concerning that such a high percentage of UK entrepreneurs do not have financial contingency plans for their business in the event of losing key staff. The current climate emphasises how crucial it is for businesses to review their finances and in doing so improve their control over the future and security of their organisation.”

Dr Marius Barnard, retired cardiac surgeon and creator of critical illness insurance has supported Scottish Widows’ thought leadership and research campaigns over the years. On these latest findings he stated: “Whilst modern medical science means that a business leader may survive a heart attack, the business may die from it. The definition of business protection insurance is to give the business liquidity when it is needed most.”

The impact of retirement, death, critical illness, incapacity or an accident can be made even greater if no exit strategy is in place. Scottish Widows’ study also revealed that 65 per cent of businesses do not have an exit strategy for example when they plan to leave the business. In addition over half (56 per cent) of UK businesses have not even considered the impact of having to unexpectedly leave the business should the unforeseen happen such as critical illness, incapacity, accident or death.

This is particularly pertinent for small to medium sized businesses who account for around two thirds of private sector employment and over half (51.5 per cent) of private sector turnover.

Richard Jones continued: “Having a business contingency strategy should be an early priority when people think about starting a business and should be reviewed as the business evolves. This will help employers get the maximum investment back from their company, successfully market their business to potential buyers and ensure their exit from the business, be it planned or unplanned, causes as little disruption as possible.”

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