The majority of small businesses understand the importance of taking out insurance against fire, theft or floods but not so many consider insuring the health of their personnel. But this ’wing-it‘ attitude is changing as employers across the board become more aware of the role that good health and a decent work/life balance can have on company productivity and more employees request health benefits.

The vagaries of NHS waiting lists is another prompt for some employers to buy policies that entitle staff to private treatment, particularly if they have had a brush with a debilitating illness. “I had a client who couldn‘t work because he needed standard surgery but couldn‘t get near an operating table for 12 weeks,” recalls Tim Schofield, a financial consultant with Alexander Forbes Financial Services.

Denis Palmer, senior client service manager for London Business Link, remains sceptical about the role of health insurance, however. “It‘s very rare for micro-businesses to take it out as it‘s a prohibitively expensive measure for an intangible risk,” he says. Interestingly, Dave Priestly, sales director of PruHealth, a division of the Prudential, echoes this sentiment. “PMI is a fairly expensive benefit to provide and you have to be pretty sure of your cost justification,” he says.

But the two propose very different remedies for unexpected, long-term sickness absence. Palmer points out that if serious illness does strike, companies can find themselves in a similar position to covering a period of maternity leave: it‘s a question of the rest of the staff pulling together and calling on outside help when necessary.

Certainly successful small firms are highly resourceful and this remains a likely contingency for a majority of micro-businesses. For example, Gill Gledhill, proprietor of fashion marketing agency GGHQ, needed a medical procedure that required a gradual rehabilitation but found she wasn't covered by her existing policies.

“I had critical sickness cover but that only covered scenarios like losing a limb. I also had private medical health insurance but it didn‘t cover this particular procedure,” she explains. Gledhill eventually had the operation on the NHS and her husband, who works in the same field, oversaw the running of the business while she recuperated.

PruHealth‘s Priestly argues that companies which buy health insurance should look at the bigger picture. “Traditional PMI is out of date because it focuses on recovery from ill-health rather than promoting wellness in the workforce,” he claims. On top of the traditional element of provision of private, secondary medical care, PruHealth offers ’wellness‘ benefits including discounted gym membership, entry to health spas and health screening.

’Small businesses want to be seen to be as caring employers and to be competitive and to attract the right employees. The right kind of employee would consider private medical insurance to be a standard part of a package‘

Standard fare
Intriguingly, companies that provide PMI for their staff don‘t always expect the investment to safeguard their business. Instead, the motivation for offering private medical care is shifting from the rehabilitation of staff to enhancing employer branding, believes the Federation of Small Businesses. “Big businesses all offer it so smaller firms are finding they need it too if they want to be able to compete for the best staff,” a spokesperson explains.

Prudential research confirms growing demand for these benefits: two-thirds of employees expect their company to provide health support and 76% say they feel more valued if it‘s offered. Alexander Forbes‘s Schofield believes employers view PMI as an increasingly useful tool in the war for talent. “Small businesses also want to be seen to be as caring employers and to be competitive and to attract the right employees,” he says. “The right kind of employee would consider PMI to be a standard part of a package.”

Schofield advises businesses to take the time to be clear about their objectives before parting with their money. For example, with very small businesses where the health of a few staff is vital, he suggests that income protection – where the company is able to claim back a percentage of an employee‘s salary should they be off sick for a certain period of time – is often a better means of insuring the business than PMI. This frees up funds to enable the business to buy in temporary cover and means sick employees are more likely to return to work once they have recovered.

“Small companies that are just starting out want to protect the business and income protection is a better way for them to do this,” he states. “While PMI is much more heavily advertised and advocated by providers, from the business perspective, income protection is probably the key.”

A big issue is deciding at which point the benefit should commence, explains Schofield. The earlier a policy kicks in, the higher the premium. The majority of business owners who opt for this type of insurance prefer to hedge their bets and assume they can survive the first eight weeks paying employees full-pay themselves and scrimp through the following eight on half-pay.

Star performers
Key person cover – where a company insures against losses that arise directly from the absence of a vital employee such as a sales director – is another, more targeted way of mitigating illness risk and is one that worked for laundry firm Cornish Linen Service Group. In 2003, the company‘s joint managing director Alex Rowe suffered a stroke which kept him away from work for six months. But a key-man insurance policy ensured the business received a lump sum of £250,000 which tied it over during his prolonged absence.

“In my absence the business was unable to secure many new business deals,” recalls Rowe, who claims the lump sum of £250,000 helped maintain the firm‘s profitability as well as covering the costs incurred in providing temporary staff. “We had looked at ways of ensuring other staff members would be able to cover our roles in the event of unforeseen absences,” he adds. “But the problem is most operations manuals are difficult to write, harder to understand and rarely kept up-to-date.”

For those opting to take any insurance route, understanding what makes your workforce ill will help you buy the best product, recommends Ben Wilmot, policy adviser at the Chartered Institute of Personnel and Development (CIPD). The organisation‘s research shows that whereas back pain is the leading cause of long-term absence for manual workers, stress is the undoing of many office-based employees.

In countering stress, Business Link‘s Palmer rates investment in an employee health helpline as more useful for small businesses than heavy duty and expensive PMI policies. “Independent and specialist health advisors are able to pick up on things that managers can‘t see – let alone counsel on – such as stress and alcohol and drug misuse,” he explains. “It‘s a very helpful way to manage problems and can offer an intervention before they spiral out of control. Medium-sized companies can also receive reports about any high incidences. It‘s an early warning that a situation might need to be managed.”

Finally, Priestly recommends companies solicit the advice of a broker to guide them through the insurance minefield. Many products on the market were developed for large corporations and ’re-badged‘ for smaller firms but these businesses need a product that is “simple and low on administration”. Paradoxically, points out Priestly, while small businesses can spare the least time to develop a thorough understanding of benefits, they are also more likely to buy direct. Taking the time to understand the business needs and the type of insurance available could prove critical should ill-health come knocking.