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Protect your business with Keyman insurance

May 31, 2010

ADAM owns a successful, award-winning design firm that has expanded from its headquarters in Singapore to Malaysia, Thailand and Shanghai.

Adam knows that the core of his company's success is the graphic design team, headed up by his long-time friend and partner Victor. Victor has a good eye for talent and has recruited a team of young artists and designers that keep the company's work fresh and stimulating.

While Adam and his firm are doing well, there is one thing that worries him greatly. If something happened to Victor how would his business fair?

Finding another top-notch designer could be time-consuming and costly while his business suffers during the downtime.

Some customers may also choose to terminate their projects and compensation would have to be made to them. Adam knows he needs to take steps to ensure his company's viability if something did happen to his friend and partner.

The issue worrying Adam is common in the Singapore SME community.

Many businesses are highly dependent on the expertise of one or two individuals within the organisation, and if something happened to them, there could be serious repercussions to the company both operationally and financially.

Imagine a company suddenly losing its CEO, a fashion house losing its top designer, or a R&D company losing its chief scientist. All these examples have the potential to cripple a business and affect its ability to function.

Fortunately for SME owners like Adam, there is a solution they can consider to protect their business - keyman insurance.

So what is keyman insurance and how does it work?

According to Ms Jenny Lee, Senior Vice President of High Net Worth and Bank Distribution for HSBC Insurance Singapore: 'The idea of keyman insurance is to provide comprehensive coverage to compensate a company for its potential financial losses resulting from the departure of an important member of its team.'

'So when there are changes to a company's key personnel due to an unforeseeable occurrence, the business will receive compensation so that it can continue operating. This is the key to maintaining business continuity,' said Ms Lee.

The process of establishing keyman insurance is straightforward.

What SME owners and managers need to do is take a hard look at their company and identify the people who are critical to the ongoing success and operations of the business.

Once the key people have been identified, you need to assess their financial contributions to the business and determine the level, type and tenure of the protection needed.

The sum assured is arrived at by using a multiple of the company's net profit as well as the contribution made by the person insured to that profit.

As Ms Lee explains, HSBC Insurance Singapore works closely with its Commercial Banking colleagues to help customers implement their business continuity plans.

'Because HSBC takes the time to understand our customer's business, we can recommend the appropriate level of insurance for each individual business.

'We recognise that every company is different and that's why HSBC adopts a customised approach that focuses on the unique needs of each and every customer.

'With proper planning, a business will survive the likely ups and downs, and its legacy will continue for years to come,' said Ms Lee.

HSBC offers two forms of keyman insurance.

The first is called a Value Term Policy which covers the death or permanent disability of a key staff member for a fixed period of the insured person's life, up to 90 years of age.

The second and more comprehensive form is a Jade Policy, which provides for lifetime cover for death. With a Jade Policy, the sum insured can range from US$1 million to US$50 million. A Jade Policy is the preferred solution where the insured amount is large as it offers more benefits than a Value Term Policy.

While no-one wants to think about misfortune happening to a friend and colleague, the reality in today's modern business world is that companies need to plan for all eventualities.

And with the right keyman insurance in place, you can be confident your business will endure regardless of any unforeseen circumstances.

To find out more about keyman insurance, please call the HSBC Customer Service Centre at 1800-216 9008 (Singapore) or (65) 6216 9008 (overseas).