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“What happens if…?” These three words begin most questions that business owners ask themselves on a monthly, weekly, perhaps even daily basis. They usually relate to operational tasks such as meeting deadlines, completing orders, or retaining a key client, but with the newspapers full of bad news – extreme weather, rising crime and, for instance in the Middle East, civil unrest – it’s not uncommon to entertain more pessimistic thoughts such as the ever-present risk of fire, theft, key employee absences, and lawsuits.
For most companies, such critical events would be traumatic enough, but for family firms – where the shareholders often carry the same surname – such occurrences threaten the legacy and security of future generations. So as painful as it might be, it does pay off to ask the questions that seem frightening.
However, in my experience as both an insurance professional and a leader of the company that my father set up in the UAE in the 1960’s, identifying and securing the right coverage is one of the elements that largely ignored by family businesses. Awareness of insurance – what it does, why it’s important – seem to be generally low.
There are, I think, two reasons for this attitude in many family businesses. The first is that for the smaller family enterprises, the day-to-day or month-to-month overheads – salaries, rent, stock, and marketing – always take priority. Insurance seems like an extra cost on top of other commitments.
The second stems from the foundation stories of family businesses. Many first generation entrepreneurs created their firms under tough circumstances meaning that not only was caution built into the DNA of these companies, they were also directly managed by the founders in most cases until their deaths. For many years, they were effectively self-insured.
As second and third generation owners take charge of their companies, with new ideas, new products, new business landscapes, and importantly, new family members to support, risk assessment should be a critical tool in the planning process. New policies such as key man insurance, where a business is covered against the loss of an essential employee, can help answer that all-important question: “What happens if…?”.
The most important first step is for people who run a family business to look at what coverage they have, what risk management principles and procedures are in place, and then think about the possible outcomes if they don’t have the right insurance.
Ultimately, that’s what insurance is. It’s not simply an extra cost; it’s a peace of mind, a safety net against the unforeseen. I begin most of my consultations by asking potential clients, “What is important to you?” The response usually provides a world of answers.