Protecting against the loss of a key business figure

Lloyd’s of London is offering “key-man insurance” as a way to protect a company from economic loss if a key person in the organization dies or leaves as a result of illness.”It is a sad fact that in the workplace, organizations must continue to function despite the death or illness of a colleague,” Lloyd’s notes in a posting on its Web site. “But the loss of a highly influential individual needs to be treated with great care, particularly when they are considered to be critical to the success and direction of the company.”Key-man insurance is one way companies can protect themselves against a drop in revenue when they lose a senior person – either temporarily or permanently.”Key-man insurance coverage is much more likely to be taken up by smaller companies, Lloyd’s noticed. The influence of one person is likely to be much greater in a smaller organization than in a large multinational company, where succession planning is more likely to be institutionalized.”Often in smaller companies the individual contribution of one person is the key asset of the company,” says Tim Prifti, active underwriter for accident and health at Kiln Syndicate 510, who heads up the key-man practice.Industries likely to take up key-man insurance include investment houses and law firms, in which individual “hot shot” partners can bring in more than 20% of the firm’s revenue. Also, the movie industry might purchase such cover to protect itself against a lead actor dying in mid-filming (much like Heath ledger died in January 2008 during the editing of The Dark Knight, casting a shadow over the $180-million production).The sports industry, featuring star athletes, might also be a likely candidate for such insurance.Trying to calculate the value of a key person to their company is a science in itself, says Prifti. “Sometimes their value is a multiple of the profits they generate through their client base or their contacts or their unique skill,” he says. “It could be a multiple of their salary, but it could be you have to get an accountant in to go through the books of the company to try to forensically audit the books.”