Business protection is one of the largest untapped markets in desperate need of financial advice. Clare Harrop issues a call to arms
The recession of the past few years has put all types of business, of all sizes, under pressure.
But while the economy continues to stagnate, firms continue to find new ways to protect their operations, whether by reducing overheads, introducing flexible working practices, reducing their reliance on credit (which remains in short supply) or good old-fashioned cost-cutting.
The desire to take cost out of the business is an understandable one. If we are, as Goldman Sachs would have us believe, entering "The Great Stagnation", then "lean and mean" will become the new watchwords for British companies going forward.
But there are certain areas of the business that should remain sacrosanct, and business protection should fall into this category.
Put simply, the right cover for key individuals and core elements of the business is indispensible.
While cover should regularly be renewed and evaluated, it should never be dispensed with in the desire to achieve savings.
It is our role in the protection industry - both providers and advisers - to ensure that clients do not make this mistake.
BENEFITS OF BUSINESS PROTECTION
What does business protection cover? In its simplest form, it ensures that businesses are protected against the financial problems associated with the loss of one of their key people or one of the owners through death, critical illness or temporary disability.
It also includes key person income cover for sickness, designed for the employer to protect themselves from the loss or profit they would suffer if a key person in the business is incapacitated.
Suitable products include Legal & General's Key Person Protection (Profit Protection), where policy proceeds are paid directly to the business to be used to help replace a key person and cover the loss of profits that may occur. The policy proceeds could help the business to continue trading.
Key Person (Loan Protection) is a different solution, by which the policy proceeds are used to help pay off any outstanding loans a business may have.
Finally, Share Protection insurance means that, on the death of a business owner, the policy proceeds are paid to the remaining owners to buy the share of the business from the deceased's estate.
The requirement for all of these types of product is huge. L&G research suggests that the UK business protection market could be as much as £1.1trn, consisting of £270bn in uncovered corporate debt - £400bn less shareholder protection than is required - and £400bn lacking in key person cover.
These figures should prove a wake-up call to business owners and demonstrate the scale of the opportunity if we can get this right as an industry.
L&G undertook a major research project to gain insights into the scale of the challenge and the opportunity.
First, we looked at how many key individuals the average UK business has. Chart one (left) shows the results.
The research also revealed 70% of businesses had not reviewed their partnership agreements or articles of association within the past year.
