Legal & General is leading the way in business protection research and has revealed that businesses in the UK currently have a £1.35 trillion shortfall in business protection. The latest data which researched the assets, shares and profits of businesses and the attitude of business owners, shows a reduction in corporate debt of just over £41 billion, a decrease in Key person protection of just over £21 billion and a significant increase in the shareholder protection gap of over £255 billion.
The biggest factor to account for the change in the protection gap is the increase in the number of limited companies and partnerships without cover. In calculating the gap they found that the number of limited companies had increased by100,000 from 2008, now reaching1.3 million in the UK.
Businesses have changed they way they are structuring their debt and managing the day-to-day cash flow issues they may face. Their previous research showed that bank based loans made up 30% of all corporate debt which has now reduced to 16%. Banks have not been able to invest in businesses as freely as they have in the past and business owners have been working hard to pay off outstanding debt wherever they can.
The research shows a significant rise in the proportion of alternative forms of debt, including overdrafts and regular credit card used, from 21% in 2011 to now 41%, of the total debt held. Clearly this is a more expensive way of funding debt. Figures from R3, the insolvency trade body show that 1 in 10 companies in the UK are only able to pay the interest on their debts but not reduce the debt itself.
The study also revealed that over half of all corporate debt remains unprotected, an increase of 19% on our 2011 research. This increased reliance on short-term debt like credit cards and overdrafts shows the precarious position many businesses could be in if something unexpected happened to an owner or other key person.
In addition many business owners do not realise that Director Loan Accounts are a debt to the estate, which has to be repaid to the family in the event of death. Almost 70% of businesses had no plans in place to be able to do this.
The study also revealed that 31% of business owners surveyed take assessing and managing business risk very seriously to ensure that they have an appropriate level of insurance cover. Yet 50% say that whilst business risk is important, they don’t always feel they need to be insured for everything. Equally, 30% of business owners said they didn’t have any insurance cover in place in the event of a key person within the business dying or becoming terminally or critically ill, because they either hadn’t even considered it, hadn’t got round to it or because they were too busy to evaluate it.
The findings come as Legal & General and Unbiased the professional adviser search, launch the ‘Every Business Matters, campaign. This campaign will examine attitudes to business protection, highlight the gaps in the business protection market and raise awareness of key issues such as the financial impact of a key worker and where businesses are most at risk without cover.
Clare Harrop, Head of Specialist Protection at Legal & General says: “Since 2009 Legal & General have worked with other associations to bring advisers an insight into where the gaps lie in the corporate market and how to work with business owners to help them realise their human capital vulnerabilities. Businesses have always had to adapt to survive but recent economic pressures have meant that the pace of change has sped up significantly and as a result UK businesses are holding more un-indemnified risk than ever.
The aim of Our ‘Every Business Matters’ campaign is to raise awareness and gives opportunities for advisers to discuss the importance and need for cover with their clients. As a key provider in the protection industry it’s our aim to support Britain’s businesses in closing the business protection gap.”
