Key Person Dependency

Why it matters for underwriting

Key person dependency captures a concentration risk that is invisible in standard headcount or payroll figures: a small company where a founder holds substantially all client relationships, or a technical firm dependent on one specialist’s proprietary know-how, faces a materially different loss scenario upon that person’s death or disability than a business with broadly distributed responsibilities. Underwriters need to quantify how much value is tied to specific individuals to size the sum insured for key person life and disability cover and to assess whether the loss would be a manageable disruption or an existential threat to the business.

Capturing the attribute and evidence

Underwriters typically request an organisation chart annotated with role criticality, a revenue-by-client or revenue-by-relationship-manager breakdown showing concentration, and any documented succession plan or key person register. Because the true dependency is often qualitative, underwriters also probe how replaceable each key person’s client relationships, technical expertise or regulatory licences would be within a realistic timeframe.

Effect on coverage, premium and conditions

The degree of dependency directly drives the sum insured requested and the premium rate applied, since the cover is priced on the financial loss the business would suffer, not solely on the individual’s health. Weak succession planning or an undocumented concentration of client relationships can result in a lower sum insured being underwritten than requested, or a condition requiring a formalised succession plan within a defined period.

Mitigation measures

Companies reduce this exposure by documenting and formalising succession plans, cross-training staff or building redundant client relationships so no single person is irreplaceable, and periodically reviewing revenue concentration by individual to catch emerging dependencies before they become critical.