Research from mutual insurer Royal London reveals that nearly three in ten (27%) SMEs surveyed by YouGov, equating to an estimated 1.6m businesses in Great Britain, have experienced the absence of a key person/employee.
Despite this, more than 4.6m SMEs (79% surveyed) do not have key person insurance protection in place.
The research also revealed that one in seven (16%) of all SMEs surveyed don’t have any sort of protection in place for their business at all.
Importance of protection
Calculations suggest that a further 2.4m SMEs (41%) agreed absence of a key person or permanent employee absence (i.e. due to death or serious illness) would have a severe impact on their business. Yet only 2 in 10 of those who agreed it would have a severe impact on their business have key person insurance in place (19%).
Nearly half (44%) of SMEs who had heard of this type of insurance perceived protection against the absence of a key person to be important to their business.
The research also found that 3m SMEs (52% surveyed) have not had a discussion about business protection with their accountant, financial or legal adviser, or anyone inside or out of their business.
Barriers to business protection
Barriers to business protection amongst those who do not have it included the perceived lack of relevance to a business due to being a sole trader (23%), not having a business loan (35%) or generally feeling it is not relevant to their sector (23%). Barriers also included perceived cost or value for money (33%) and that businesses feel it’s unlikely their employees would become seriously ill or if they do they would be able t0 replace staff (20%).
Ian Smart, product architect at Royal London said, “The research highlights the glaring protection gap when it comes to SMEs. Despite many businesses recognising that a key person absence would have a severe impact, it is concerning that they have not yet talked about protecting their business with a financial adviser or taken out any form of protection.”