AXA Business Protection

This presentation is directed at professional financial advisers only and should not be distributed to or relied upon by retail customers.

AXA Protection Account Business Protection


AXA Business ProtectionSelling Business Protection



Selling Business ProtectionTopics to cover…

1. Business Protection – The Need

2. Selling Business Assurance

Planning

Preparation

Execution



Business Protection – The NeedWhy do people go into business?

Do it to make money

Build their business as part of a dream

Expect to pass on the rewards to their family and heirs

Want to see the business survive and flourish

Enjoy the independence and take pride in its success

Want to be own boss and be in control

If a key person becomes seriously illor dies…



Business Protection – The NeedWhat businesses purchase what protection?

Shareholder Protection

Loan Protection

Executive Income Protection

Partnership Protection

Key Person Protection

Sole TraderPartnershipLimited Company



Why sell Business Protection?The market…

Business Protection is a largely untapped market. At the start of 2007 there was an estimated…

4.7 million businesses in the UK, which equates to approx: 1,200,000 plc 507,000 partnerships 3,000,000 sole traders

Source: BERR Press Release 2008

With most SMEs having little or no Business Protection cover, the scope and market potential is substantial



Why sell Business Protection?The market…

60% of businesses do not have

business protection Source: Swiss Re Insurance Report 2005

In 2005, Swiss Re’s Insurance report discovered:

The average Life Cover sum assured applied for in 2008 was over £474,000

for Business Protection. Over 3

times more than for Personal Protection

Source: AXA Applications 2008

Its estimated that only 5 – 10% of companies have

Key Person cover Source: Swiss Re Insurance Report 2005



Why sell Business Protection?The opportunity…

It is also worth noting that

Business Protection discussions can lead to further opportunities

There is a £500 billion Business Protection Gap

Source: Swiss Re Insurance Report 2007

A subsequent report in 2007 found:



Business Protection – The Need

There have been over 200,000 business closures in the first half of 2008

Source: Barclays Newsroom, 2008 half year start ups and closure

report

5.8 million working days were lost due to sickness or injury between June 2007 and July 2008

Source: National Statistics

Feature – Sickness absence from work in the UK, 2008

Your clients can protect against…

Individuals have a 40% chance of serious illness

before age 60 Source:

www.statistics.gov.uk, 2001 census

Individuals have a greater than 1 in 8

chance of death before age 65 Source: www.gad.gov.uk, 2004-2008 interim life

tables



Selling Business Protection

Prepare by:

Knowing the technical- we can help

Learning the structure /script

Visualise positive outcomes

Preparation

Fail to prepare, prepare to fail“

”



Typical Sales Process Selling Business Protection

NegotiateU/Wers

PaperWork

Plan toPresent

Analysis& Report

ConductFact Find

Find away in

IdentifyPotentialClients

Conclude

PlanRegularReviews




Sole practitioners

Partnerships

Small Limited Companies

Quoted Companies

Managing Director

Finance Director

Partnership Senior partner

Partnership Secretary

The world

loves a speciali

st

Identify clients...




Flyers and sales aids

Presentations to the business community

Existing clients

Referrals

Professionals that already work for you

Breakfast meetings etc

Find a way in…




Be here

Prepare for the first meeting…



Selling Business ProtectionThe first meeting…

The objective:

To raise awareness of this aspect of managing business risk

Complete a preliminary corporate fact find

Seek permission to conduct a full review of the risks

Agree who should be involved ( decision makers)

Seek initial views on business value/key person value and why there is a risk. Design and use questionnaire covering this .( note: not all people you speak to will be privy to information you might hold)

Ask for justification of values etc




Deeper analysisMemorandum/articles –do they restrict share dealsAsk about loans and ability to repaySeek views on what happens if share holder dies Seek to understand consequences of key person deathMore individual fact finds?Don't forget other business opportunities

Aim to really understand what the client wantsKeep in mind the requirements of the provider

Following meetings…




Routes to a satisfactory conclusion:

LOA on Key Person

Shareholder Protection in Trust for other Shareholders

Partners in trust for other Partners or Accrual agreement and own life for beneficiaries. Capital accounts still need to be dealt with.

Combine Key Person and Shareholder Protection in one policy in trust for other Shareholders

LOA on Shareholders to “buy-back” shares

Understanding the Underwriting approach ( varies with each provider)

Work out a solution…




Taxation matters;

Key person, the insurance is to protect revenue – which in turn provides profit

Loan protection – no tax relief

Share protection- no tax relief

Premiums generally paid by the business and treated as earned income therefore subject to income tax

Claims treated on their merits (despite how premiums have been treated) but generally only true key person insurance is taxed as a business receipt

This information has been based on our understand of current tax legislation, which is subject to change and individual circumstances

Work out a solution cont’…




Generally available 100%

Quoted companies 50% (if controlling interest)

Lost if asset is subject to a sale agreement

Only available on assets used in running the business

IHT Business Property Relief




Prepare a report:

The situation

The risks

The solutions

The costs

The detail

Next steps

Putting pen to paper…




Present to the Board (ensure minutes taken)

If other professionals are in attendance address their issues and seek their agreement in front of the group

Seek Board approval

Move to the paperwork

In the Boardroom




Check requirements

Understand the usual underwriting approach

3 years profit figures/accounts

No Financial Questionnaires required under £1 million for Life Cover and £500,000 for Critical Illness Cover

Medical questionnaires ( Tele-underwriting?)

Discuss case with Underwriting Team before submission

Be ready to justify sums assured

Submit the paperwork



Share protection for directors

Key person protection

Key person protection for shareholders as all three are key to the company’s continuing success

Possible business loan protection for bank overdraft

Business loan protection for directors’ loan accounts

Executive Income Protection

What would TAT Limited be interested in?

Selling Business ProtectionCase study – TAT Limited



TAT LIMITEDDIRECTORS’ REPORT

PROFIT ……. AFTER TAXATION £180,480

(2005 - £89,829)

RECOMMENDED DIVIDEND £500 PER SHARE

ACTIVITY – TRAINING AND DELIVERING OF

TECHNICAL EXCELLENCE

DIRECTORS & INTEREST IN SHARE CAPITAL

ORD SHARES AT £3.33 EACH

AT 31.12.06 AT 31.12.05

Greg

Derek

Brian

100

100

100

100

100

100



BALANCE SHEET – 31.12.062005

£

300,000

60,000

8,000

FIXED ASSETS

PROPERTY

TANGIBLE ASSETS

MOTOR VEHICLES

FIXTURES, FITTINGS

2006

£

350,000

70,000

10,000

£

368,000 430,000

CURRENT ASSETS

TRADE DEBTORS

STOCKS

MONEY MARKET

CASH ON HAND

180,000

200

25,000

-

10,000

215,200

230,000

-

40,000

91,000

15,000

376,000

CURRENT LIABILITIES

8,000

1,000

75,000

TRADE CREDITORS

ACCRUED CHARGES

PROPOSED DIVIDEND

9,000

1,000

150,000

13,000 TAXATION 43,000

10,000

3,000

-

110,000

PAYE & INC

HM CUSTOMS & EXCISE/VAT

BANK OVERDRAFT

10,400

4,000

40,000

257,400

105,200 NET CURRENT ASSETS 118,600

473,200 TOTAL NET ASSETS 548,600

How secure?How old?

Healthy cash position

Not much owed

Re valued ?

Why, to support trade debtors?



REPRESENTED BY

SHARE CAPITAL & RESERVES

2005 2006

£ £

999 CALLED UP SHARE CAPITAL 999

26,829 RETAINED PROFIT 57,309

445372

_______

DIRECTORS’ LOAN ACCOUNTS 490292

_______

473200 548600

More detail

required



Selling Business ProtectionTAT Limited - advice

Key person is linked to central government and wins substantial LEA contracts. 50% of gross profit of £2million directly related to her sales. She earns £500k

Directors value the business at 3 times gross profit and are all fully engaged in the business. Each would want £2 million ( inclusive of loan account) as a “walk away” value

Each want wealth advice at a personal level

The business wants advice on pension arrangements



Key person insurance

5 year renewable term Life Cover - £3 million

Share protection

20 year term £2 million in trust for each of the other directors

Executive income protection on all directors

Other areas result in IHT planning and pension sales

Selling Business ProtectionTAT Limited - solutions




Business Assurance sales require strategy and planning

Knowing your customer means understanding their wishes before you look at the technical

Building solutions requires the technical bits

Presenting solutions is best done on paper and at Board meetings

Selecting the provider is more about the support offered rather than the raw cost

Fees and Commission fit well in this market

In summary

Documents

AXA Business Protection