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Ms Lydia Lariba-Bawa — Insurance Commissioner
Ms Lydia Lariba-Bawa — Insurance Commissioner

Who ensures the President is insured?

It was about 3p.m. on a cold Tuesday afternoon of July 24, 2012 when news broke on the death of the then President, Prof. John Evans Atta Mills, the CEO of the Republic of Ghana! It’s been exactly five years since the unprecedented death of a sitting Ghanaian President.

This news led to an unusual quiet in the national capital with activities in other commercial and administrative parts of the country virtually grinding to a halt! The effect of this news on productivity of the entire nation cannot be quantified!

Indeed, the sad memories of this loss have set the tone for this week’s write-up which seeks to discuss the importance of the most important person in every organisation from the perspective of the State and how to financially protect such a person using keyman’s insurance.

Who is the CEO?

In every civilised 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. CEO in other contexts could also apply to Heads of Departments in organisations who play key roles to ensure the objectives of the organisation are achieved! Please note that in this write-up, the ‘organisation’ also refers to the State contextually.

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.

Juxtaposing Corporate Institutions Keyperson’s Insurance to the State’s

Unlike many governments, sad to say though, that the same cannot be said about our corporate entities, many of 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) insurance 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 to 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 (i.e. term of office).

Who is key?

It is needless to suggest that as a country, the President is the number one most important individual. Just like the State, every organisation has a number of key staff who drive the growth and sustainability of that organisation.

These individuals (e.g. CEO, Chief Finance Officer (CFO), Chief Marketing Officer (CMO), Chief Engineer, etc often have such unique and indispensable skill sets that remain critical to the survival of the organisation. The organisation may, therefore, take out a Keyman Policy on the lives or health or continuous welfare 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.

The concept

Key person 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.

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.

Ownership of the policy

Keyperson policies can be owned in many ways depending on the business’ needs. The policy is owned by the organisation and receives 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 quite recent resignation of British Prime Minister, David Cameron.

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, many insurers in Ghana already have these policies available. 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, financially. Let us also look at how the Keyperson insurance works in the 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 current President of the Republic of Ghana have this type of insurance policy or anything similar to it and who ensures that this is done?
Until next week, “This is Insurance from the eyes of my mind.” — GB

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