Insurance

Is the President insured?

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“Soldier go, soldier come, but protect the current one” — A popular cliché modified by Author.

It was about 3pm on a cold Tuesday afternoon July 24, 2012. The weather was similar to today’s.

I had just returned from a business lunch at the Ghana Institution of Engineers. I drove to my Adabraka Office but the streets were quiet and free of traffic, quite unusual of that stretch between the State House and Adabraka.

I was not listening to radio in my car; I was playing and enjoying Freddy Meiway’s Zoblazo. Upon entering my office, and quite characteristic of me, the first thing I did was to go online for the latest news updates. No! This must be a hoax. I continued to yet another platform; the contents of the breaking news were the same. I proceeded to try the authoritative graphiconline.

The story remained same! Our President, Prof. John Evans Atta Mills, the CEO of the Republic of Ghana is dead! It’s been exactly four years since we were hit by the unprecedented death of a sitting President. At that very moment no matter how hard one tried to do something meaningful at work, it didn’t work! I personally inadvertently left my office air-conditioner on and went home. Nothing really worked because my President is dead!

Who is the CEO?

In every civilized society (i.e. countries, organisations, etc.) there is a Chief Executive Officer (CEO). This may even cascade further down to families, with the family head being the CEO. Undoubtedly, the sudden loss of these individuals either through incapacitation, accident, injury, terminal illness or death, often creates uncertainty.

For instance, the untimely demise of Presidents Mills of Ghana, Ya’radua of Nigeria, and Hugo Chavez of Venezuela are somehow still fresh on our minds. Indeed, the world also spent some time mourning the late King Saud of the Kingdom of Saudi Arabia, who also died while in office.

It is not something that crosses our minds easily as somehow we think they are super-human but the sudden demise of a sitting President or King can daze anybody with emotions! Notwithstanding the momentary tensions in some cases, however, these great personalities were almost immediately replaced as per the dictates of the customs and constitutions of their respective countries.

Relating Corporate Institutions Keyperson’s Insurance to the State

Unlike many Governments, sad to say though, that the same cannot be said about our corporate entities, which are starving of good corporate succession plans; hence would require ample time to headhunt for the right replacement for a lost key staff. In this regard, Keyman Insurance policy is imperative to provide compensation to the organisation upon losing key staff, either through death or incapacitation.

What is Keyman Insurance?

Keyman (or keyperson) policy is an insurance policy taken by an organisation to cover its essential or key staff so that in the unfortunate event of losing them, compensation will be paid the organisation.

Thus, the policy indemnifies an organisation against financial losses and other negative effects of the sudden loss of key staff, either arising from death or protracted incapacitation. The payout therefore facilitates the organisation’s quest for an appropriate replacement in order to save the business from going down.

Typically, the policy term does not extend beyond the period of the key person’s usefulness to the organisation.

Who is Key?

Undoubtedly, as a country, the President is number one. Every organisation has a number of key staff, who drives the growth and sustainability of the organisation. These individuals (e.g. CEO, Chief Finance Officer (CFO), Chief Marketing Officer (CMO), often have such unique and indispensable skill sets that remain critical to the survival of the organisation. The organisation may therefore takeout a Keyman policy on the lives or health of such individuals in order to offset the costs of recruiting a desirable replacement or even hiring ad-hoc help prior to recruiting a desirable successor.

Insurable losses

Generally, there are four (4) categories of loss for which keyperson insurance may provide compensation:

i. Losses suffered during the period when a keyperson is unable to work, temporary and, if necessary to finance the recruitment and training of a replacement.

ii. Losses resulting from the delay or cancellation of any business project the keyperson was involved in, loss of opportunity to expand, loss of specialised skills or knowledge.

iii. To protect shareholders/partners’ interests, where other shareholders or partners interests are purchased by existing shareholders or partners.

iv. For anyone involved in guaranteeing business loans or banking facilities. The value of the coverage is arranged to equal the value of the guarantee.

Ownership of the Policy

Keyperson policies can be owned in many ways depending on the business’ needs. It is however not uncommon for an organisation to own the policy and receive claim proceeds arising therefrom hence the Government of Ghana can do same.

Some Sticky Exclusions in contemporary business

If an organisation takes out keyman for the CEO and s/he resigns afterwards to join a competitor, while the policy is in force, it is almost impossible for the policy to be cancelled by the organisation.

The policy will compensate a collapsed organisation, if the CEO, credited for the company’s previous success, passes on and the company loses considerable revenue as a result.

The Challenge of Resignations

The current challenge of key persons exiting organisations or being re-assigned to different departments (within the same organisation) where they are no longer so crucial is a source of worry, somehow, as the organisation would have already paid premiums on the policy. The only option would then be to modify the policy for a pro-rated premium refund, albeit negligible. One can relate this with the recent resignation of British Prime Minister, David Cameron.

The Concept

Keyperson insurance was designed during an era when top executives typically stayed with one organisation for their entire working lives. These policies built up cash value combined with a deferred benefits plan, offering an attractive incentive package for the executive in order to retain them and thereby prevent them from conceiving ideas of starting their own business or quitting for a competitor. Premiums on policies with cash-value are quite expensive but are typically signed on by family business owners who want to make sure that retiring relatives get a ‘good send-off’ in the form of a weighty insurance package and deferred benefits.

The Way Forward

Granted that the management of a country is a broader basis on which many business interests are managed, having a keyman insurance policy for our sitting Presidents would certainly not be out of place. Similarly and understandably so, because fewer people stay with only one organisation these days, this type of policy needs to be modified to cater for possible resignations, being terminally ill or exit in any form.

Fortunately, most life insurers in Ghana already have these policies making keyperson insurance very attractive. Sadly, the policy is rarely patronised by Government officials who are in key positions in various capacities. If we really cherish our key leaders, let us make it a point to ensure that they are adequately protected. Let us also look at how the Keyperson insurance works in corporate world and modify the features and benefits to suit one for our political leaders starting from the President.

In spite of the constitutional provisions and / or dictates that make it easy for the almost immediate replacement of a sitting President, the question still remains: does the President of the Republic of Ghana have this type of policy or anything similar to it?

Until next week, “This is Insurance from the eyes of my mind”.

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