Key Person Dependency (SME)
Risk profile for an SME's dependency on one or a small number of key individuals: the risk attributes typically assessed in key person underwriting and the resulting insurance programme architecture to cushion the financial impact of their loss.
Risk picture
Many small and medium-sized enterprises concentrate a disproportionate share of revenue generation, client relationships, technical know-how or financing capacity in one founder or a small number of senior individuals, so that their death or long-term incapacity threatens not just continuity but the company’s ability to service debt and retain customers. Loss drivers are therefore financial rather than physical: a sudden drop in revenue or customer retention following the loss, difficulty maintaining lender covenants or credit terms without the key person’s personal guarantee or relationships, and, where succession is undocumented, a scramble for interim leadership that itself damages the business. Lenders and creditors increasingly treat evidenced key person cover as part of an SME’s credit standing.
Risk attributes to capture
The table below is generated from this profile’s linked risk attributes and grouped by category; see the individual attribute pages for underwriting logic, evidence requirements and mitigation measures.
Coverage architecture
Key person insurance is the mandatory core, a life or disability policy taken out by the company on the key individual with the sum insured sized to the financial loss the business would suffer, not solely the person’s personal circumstances. A term life policy sits alongside it as a core layer where the primary concern is death rather than incapacity, and occupational disability insurance is an optional extension covering the more gradual, and often harder to plan for, scenario of long-term incapacity rather than death.
Prevention
Prevention priorities are documenting and periodically updating a succession or key person register naming who is critical and why, cross-training staff or building redundant client relationships so that no single person is irreplaceable, maintaining a revenue-by-relationship breakdown to track concentration over time, and reviewing debtor concentration and credit terms that rely implicitly on the key person’s continued involvement so a gap can be closed before it becomes critical.
- Kind
- Person group
Risk attributes to capture
People
- Key Person Dependency — Key person dependency records how much of a company's revenue, client relationships or technical know-how relies on one or a small number of named individuals, underpinning key person life and disability cover.
- Number of Employees — Employee headcount records the total number of persons employed by the policyholder, used to size exposure for liability, accident and group health underwriting and to benchmark rates per employee.
- Health Declaration — Health declaration records the set of self-reported health questions an applicant answers when applying for individual life, health or disability cover, forming the primary basis for medical risk assessment.
Finance/Governance
- Credit Rating — Credit rating captures the external or internal creditworthiness assessment assigned to an applicant or its counterparties, as queried in credit, surety and directors' and officers' proposal forms.
- Debtor Structure and Concentration — Debtor structure and concentration measures how the applicant's receivables are distributed across buyers, in particular the share held by the largest debtors, as queried in trade credit insurance proposal forms.
Coverage architecture
Standards and codes
- ISO 31000:2018 – Risk Management, Guidelines