Finding the key

If reports are to be believed, the business protection market remains one of the richest seams of business yet to be mined by advisers as they look to broaden the type of business that they are involved in.

Although business protection is hardly a new concept, it is surprising how many businesses remain unprotected against the eventualities of their key people falling ill and becoming unable to work, or dying.

When studying the business protection market, it is clear this lack of penetration of the market by providers and advisers can be attributed to a number of factors. Of these, perhaps the most potent is that of underwriting.

In the past, the complexities of dealing with the underwriting of large business protection cases may have discouraged many advisers from tackling this market. These days, however, the 'smart underwriting' techniques and dedicated business underwriting teams offered by certain providers can ensure the process is more streamlined and can smooth the path to this highly lucrative market.

A huge market

How many advisers are aware of the extent of the potential that this market offers? For example, Swiss Re has calculated that, were all businesses in the UK to take out keyperson life assurance cover to the value of £250,000, the total initial commission payable to IFAs would amount to £1.29bn. Few advisers would refuse the offer of a slice of a cake this size. But the good news is that this market is, as yet, untapped.

Research suggests that 90% of companies believe people are the most important factors in running their business. We work in an era when companies are willing to spend thousands of pounds to external consultancies to recruit or headhunt the best people, then to invest greater amounts in training them and ensuring their professional development. In view of this, it might be expected that companies would be willing to spend money to protect their key people ' not to mention other areas of the business ' against the worst happening.

Despite this, research suggests only 5%-10% of companies have any keyperson cover in place. These are astonishing figures, but perhaps more concerning for the adviser market is that 80% of companies said they had not had keyperson cover discussed with them or recommended to them. The opportunities are, therefore, considerable.

Catalysts for cover

Let us look at the specific opportunities that business protection products can offer. The first myth to explode is that business protection only refers to small businesses. In fact, all businesses ' whatever their size ' require insurance for the future. Keyperson cover is the principal type of insurance. Individual people can be hugely important to businesses in a number of ways. Policies should provide protection against not only the cost of replacing the individual, but against the impact the loss may have on the business ' such as loss of profit, the importance of the personal business contacts that person may have had and so on. It is still common for companies providing commercial loans to insist on key person cover to ensure that the business loan can be repaid.

Another reason for taking out keyperson cover is that venture capital companies often require keyperson protection to be in place to protect their investors' interests in case the worst should happen.

Share purchase protection ensures that in a privately-owned company, the remaining partners receive a lump sum which would enable them to buy back the shares of the deceased partner, and prevent any possible corporate ownership wrangles.

So with a number of factors acting as a catalyst for businesses to look for protection, why is the market still so underdeveloped for advisers?

Traditionally, there have been a number of barriers. First, companies are unaware of the need to take protection, or often that products of this nature exist. Similarly, many businesses take the head-in-the sand view that it will never happen. This may be particularly true in small businesses with few staff, where people feel more familiar with their circumstances or where their perception of business risk is unquantified.

But providers and advisers should work together to surmount these difficulties by raising awareness not only of the need to take out cover, but of the range of different products available on the market. In the past, many advisers have felt a lack of support from providers in negotiating the difficult terrain of business protection. They may have experienced difficulties in the underwriting, or felt that companies could have been more proactive in helping them write business.

Getting support

The secret of success in the business protection market is the effort and attention that both the provider and adviser is prepared to give to writing the case. Underwriting a business protection case is quite different from underwriting a straightforward term assurance case. Due to this, advisers are likely to look for different criteria from a provider. The product structure will be a key factor. However, there are a number of other services that providers may offer that can make it easier for advisers to write more business.

A provider with a large dedicated case team can go a long way to helping advisers operate efficiently in the business protection market. A team such as this may offer skills and expertise that mainstream underwriting and customer services may not. Effective lines of communication are vital when writing large cases and a specialist team will be able to become familiar with the details of each case, therefore speeding things up.

Competitive limits for medical and financial underwriting purposes are also worth bearing in mind. The higher the medical limits, the less likely it is that the lives assured will have to undergo extensive medical examinations. The higher the financial limits, the less likely it is that report and accounts and other financial information will be required ' which will help achieve faster acceptances.

Advisers will want to transact the business with as little disruption to the individuals involved as possible and this is where extra services, such as the offer of a large panel of consultant examiners or a travelling doctors service, can make things easier. In terms of financial underwriting, field underwriting is a new initiative advisers are finding increasingly useful.

This is where specialist underwriters are willing to travel to the offices of the business or adviser to meet the individuals in person to discuss the issues, examine the financial evidence and study the company accounts. This permits a degree of confidentiality that would otherwise be impossible to achieve. This can be important if companies are on the verge of new initiatives, or closing a deal and can be an important differentiating factor. Likewise, an immediate cover facility can make a difference if cover is required, for example, in order to ensure that an important loan is released or a crucial injection of venture capital can be made.

Analysing the case

Once the adviser has selected a provider with appropriate services and products to meet their needs, they should take a comprehensive look at the case and approach the provider to discuss the details and the likely scenarios. For example, what are the likely medical and financial requirements and can the process be streamlined at all? Streamlining would involve identifying convenient dates for executives' medicals in advance, determining whether it is possible for the underwriting team to talk directly to a company's finance director, or identifying any other ways in which the process might be speeded up. At this stage, it is also useful to establish whether immediate cover would be appropriate.

Smart underwriting is a philosophy being adopted by some providers in order to break down the barriers to advisers operating in the business protection market. Business protection may be an underdeveloped market, but increasingly providers are developing initiatives to ensure that it is easier for advisers to write business in this sector. To ensure a successful and efficient completion of cases it is, however, important for advisers to regard business cases as entirely different to other more commoditised protection cases, such as term assurance. It is with this type of larger case that advisers can really add value, but this will also require more commitment on their part as well as on the provider's side, to ensure that cases are transacted smoothly.

However, with a massive market potential, this is something that undoubtedly will reap benefits for advisers who develop expertise in this fast growing area.