Providing support

The small business protection market has been around for some time, yet there remains a wealth of untapped business waiting to be snapped up. It has been reported that fewer than 10% of all UK businesses have any form of business protection in place, yet every company can probably identify at least one key person within their organisation who is vital to the running and the success of the firm.

With such a large gap between those with business protection and those without, it is clear to see where opportunities for advisers may lie. However, the figures also beg the question: are companies aware of what business protection is and what it can offer?

Uncharted territory

Unfortunately, the answer is not a straightforward one and there are several reasons why the market remains unfamiliar territory for many small businesses and advisers alike, as Ronnie Martin, protection director for Legal & General (L&G), explains.

'The problem with business protection is that many firms do not know what it is and therefore, what it offers and how it can protect them. Those that do have some knowledge of the market often tend to believe it is more expensive than it is. Advisers are ideally placed to raise awareness and to stress the importance of the role business protection has to play,' he says.

Martin's comments on the state of the market are substantiated by research carried out by L&G in 2002. The research paper, Business Intentions, shows 100% of those SMEs questioned could identify at least one person who was vital to the running and financial security of the company. A total of 71% picked out two or more vital players, yet less than a quarter ' 21% ' of those surveyed had keyperson insurance in place.

Perhaps the most significant figure to come out of the research is that 42% of companies without a business protection scheme in place were not aware of what business protection was or what it offered. Such figures illustrate the reason the market remains under-developed as well as highlighting the importance advisers play in informing their clients about the role of business protection.

'The market has been going for some time,' adds Martin, 'but there are many small businesses unaware of what is on offer. That said, there is greater recognition of business protection now than a few years ago and advisers are starting to acknow-ledge the market offers potential.'

Moving on up

Although the market is currently underdeveloped, it has not seen any decline. However, it has not seen any huge growth either.

'The protection market as a whole is growing,' says Laura Shanks, product development manager at Scottish Equitable Protect. 'But it is difficult to quantify how much of this growth is down to business protection alone.

'There is still a large amount of untapped potential in this area of protection because advisers are unfamiliar with the territory and many companies do not realise the importance of the product ' or that it exists,' she adds.

Shanks believes the complex nature of the market means it is essential advisers are comfortable with all aspects of what they are selling, and she feels this may be part of the reason for the market's slow growth.

'The product can be a bit of a minefield and there is more to it than meets the eye, but the opportunity is waiting to be snapped up,' she says.

Swiss Life's personal finance research and planning manager, Rosalind Pearson, agrees the market does have a low level of penetration, yet believes there are a number of factors contributing to the slow take-up of business protection.

'Despite the recognition that it could generate an attractive premium income, there seems to be a reticence to develop this area. Some of the reasons are that it is complex, particularly on the tax and trust side and that small businesses, while recognising the importance of key staff, are not in a position to spend extra money on keyman insurance,' she says.

Acknowledging the importance of staff is one of the areas smaller firms are well acquainted with. Employee benefits such as group income protection (IP) and group private medical insurance (PMI) are increasingly deployed to attract and retain staff of smaller companies for who having a high staff turnaround is not a practical option.

While attractive employee benefits may help to maintain staff loyalty, it is important small companies protect themselves as a business unit by increasing their awareness of how business protection schemes operate and what the product can offer their company.

Many business protection products currently on the market are menu-based models enabling each plan to be tailored to suit the individual needs of each business. As no two businesses are the same, this solution offers every firm a chance to have a bespoke product to suit the needs and demands of their business requirements.

Back to basics

While the keyperson insurance component of business protection has a vital role in safeguarding the future of small businesses should an essential member of staff fall ill or die, it is important to remember there are other fundamental elements to business protection schemes.

'Keyman protection is only the tip of the iceberg,' says Shanks. 'The market still has a long way to go. Small companies need to consider other components as well such as share purchase protection and corporate loan protection. It is all about protecting the business, and ensuring that all proceeds from a business protection plan can be ploughed back into the business itself, should the need arise.'

Martin agrees that share purchase protection should most definitely be considered by a small limited company with two or three partners.

'If a shareholder dies, then having this protection in place will ensure the company is well placed to purchase the deceased's shares and to retain control of the business itself,' he says.

While the business protection market has been around for a while it is fair to say it remains relatively unsaturated in comparison to other sectors of the market. With this in mind, advisers looking to develop a niche can tap in to this area with the knowledge there is plenty of potential to gain a healthy income.

Many firms are unaware business protection exists and as a result, are not acquainted with the workings of the market and what the product can do for their business. It is up to advisers to inform their clients that such protection exists and what it can do for the company, as the business is out there waiting to be snapped up.

'The outlook for the market is positive,' adds Pearson. 'Given that 25% of all businesses are partnerships and 96% of the enterprises in the UK employ less than 20 members of staff, these figures speak for themselves, in terms of potential.'