55% of companies would stop trading if they lost one or more key people to illness, long-term incapacity or death, yet just one in five companies have insurance in place to protect against such a loss, according to the latest research from the Scottish Widows Business Protection Report.

At the same time, 77% of respondents report that there is at least one employee in their organisation whose loss through death, critical illness or long term incapacity would seriously impact the profitability or survival of the business.

This trend is set against a rise in the number of companies with liabilities (such as business loans, mortgages and overdrafts) from 34% to 42% in two years, coupled with a small increase in the number firms from 32% to 34 % with liabilities but no financial plans in place should they lose a key person.

Nearly 70% of companies identified ‘delivering on commitments and promises to customers’ as the most important aspect of their business and top of the list for 32% of firms was the need to cover their fixed overheads.

In contrast, insuring against the death of a key person was picked out by just 3% as their biggest priority. The results were almost identical when it came to insuring against a key person suffering a critical illness or long-term incapacity.

Almost three quarters of respondents to the Scottish Widows Business Protection Report are an owner, founder, partner or all three of the company. With such small teams predominant within this business demographic of micro businesses, the loss, either temporary or permanent, of just one member of staff can have an overwhelming impact on an organisation’s ability to operate and maintain continuity of business. Many firms feel the likelihood of such an eventuality is relatively low, however, of the 14% that have been impacted, 44% said they suffered a loss of revenue and 55% were affected by the loss of expertise.

Katya MacLean, protection spokesperson at Scottish Widows, said: “Attracting customers and keeping them happy should always be a company’s priority, likewise insuring premises and the equipment that keeps it going. However, while business protection insurance for staff is rarely a priority, its absence can be the biggest single risk to the profitability and even the very existence of a business.

“Businesses need to strike a balance with their priorities. They can survive without a photocopier, for example, for a short period but the majority would be in far greater difficulty in both the short- and long-term if they were to lose one or more of their key employees.

“Companies need to look carefully at succession planning and all the risks posed to a business regardless of how likely they are to happen to ensure they can continue to meet what they consider their key business priorities, whatever the eventuality.”