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Joe Clark is living life on the edge while his window of opportunity may be closing before his visionary eyes.

Clark's company, Aviation Partners, has quietly become one of the most influential players in the competitive aviation industry. Its bent winglets, designed to increase the performance and economy of commercial aircraft, have been installed on every long-range version Boeing 737 delivered to Southwest and Alaska Airlines. Winglets have been retrofitted to fit Gulfstream and Hawker corporate jets, and were included into the design phase of the next-generation Boeing 787 Dreamliner.

Clark assembled an experienced team of retired aerospace professionals from Boeing and Lockheed to develop his winglet design in 1991. Now that his vision is coming to commercial fruition 15 years later, many of the core members of the team are well past 80 years old. Like many enterprises, the executives at Aviation Partners have hefty life insurance policies in place to protect family members in the event the unthinkable occurs.

But the high-flying company may have ignored the more realistic possibility that its key players are more likely to become sick or disabled and not be available to contribute to the company's unique pool of expertise.

It's a surprising omission, in light of the fact four key employees have undergone heart surgery in recent months. Clark and representatives of Aviation Partners declined to comment for this article on the need for disability insurance.

Many of America's top executives hide their collective heads from the need to protect their companies from the financial adversity that could take place if key individuals are no longer able to contribute their expertise.

"We are like an ostrich who buries his head in the sand to escape predators, but leaves the rest of our body exposed to danger," says David Dwelle, who owns and operates the Nella Oil Co. with his brothers in Auburn, Calif. "People resist planning their own funeral because everyone believes they will be healthy and live forever."

Executives may see the economic future but are often blind to the hardships a simple accident or illness could spell for employees and stockholders, he says.

Dwelle is secure in the knowledge that his brothers would maintain their family-owned business in the event he should become disabled. His overriding concern would be financing the sustainable-energy sources that have become his personal passion.

ROLL OF THE DICE

The chances of a 45- to 50-year-old individual becoming disabled for more than 90 days is four times greater than the same person's chance of dying prematurely, according to a study published in 2002 by the Business Disability Press.

"Despite the potential of what an accident or disability would mean to the livelihood of a company or the family of that executive, financial advisors continue to recommend life insurance to guard against loss from death, but are seemingly unaware of the greater potential loss from disability," says Glenn Dorr, vice president of Prestige Development, a subsidiary of HCC Insurance Holdings Inc. in Wakefield, Mass. "An excess disability provider can provide safety nets of more than $40 million to companies and $10 million for individuals who are disabled and unable to maintain their current lifestyle."

The impact of what one person could mean to the fortunes of a single business became clear in early March when shares of Clorox fell the day Chairman and CEO Gerald Johnston reportedly suffered a heart attack.

"The ripple effect can be devastating, creating far-reaching financial hardships for hundreds, even thousands, of people," says LeAnne Rossi, vice president of the sports, entertainment and special risk division at the privately held brokerage firm BWD Group LLC in Jericho, N.Y. "Losing the wrong person might mean a company would be forced to close its factory. That affects everyone from stock clerks to stockholders." Dorr describes the ripple effect as a tsunami in terms of financial devastation to individuals, companies and investors.

W. Harold Petersen, the founder and namesake of Petersen International Underwriters in Valencia, Calif., was instrumental in determining the first set of rate standards for key-person disability soon after he founded his company in 1948 as an American agent for Lloyd's. The initial interest in specialty disability surged when it was first introduced, according to Petersen, but interest waned in the decades that followed.

"Companies think nothing about insuring their hard assets--their buildings and their machinery--but avoid thinking about the people who are behind the idea or the product," says Petersen. "It's hard assets versus intellectual assets. Brick and mortar have never received credit for a new idea or an innovative solution."

HCC Specialty and Petersen International are currently the two major players in America providing key-person disability insurance.

Premium dollars for executive disability coverage topped $500,000 for the first time in 2005, according to one industry source. Submissions at HCC Specialty have risen between 10 percent and 15 percent every year over the past five years.

Premium dollars have more than doubled at Petersen during the same period. Annual premium jumped from $1.2 million on 156 issued policies in 2002 to more than $2.6 million on 212 policies in 2005, according to Mark Petersen, the firm's marketing director.

"This peril goes unattended," says the elder Petersen. "Nobody's talking about it. Every vital company has a rainmaker. That person represents a living, breathing investment who jeopardizes the future every time they get behind the wheel of a car or board an airplane."

Andy Mok, the founder and CEO of Insurgent Technologies in Mercer Island, Wash., has developed groundbreaking actuarial software for insurance companies. Mok loves to ski and participate in other outdoor activities with a high risk of injury, but has never thought of disability insurance for himself.

"It's academic at this point," says Mok, who spends as much time entertaining venture capitalists as he does writing software. "If I were unable to produce at my current level, Insurgent Technologies would be forced to close its doors. That would spell trouble for the professionals who have tied their futures to my wagon.

"There is nobody else," he adds. "Disability insurance would be an excellent guarantee for our investors."

Petersen reiterates this.

"Venture capitalists who invest $10 million to $15 million into a startup enterprise dependent on one person are often eager, if not anxious, to take out a disability policy on that key person," he says. "Without the person who has the vision and the knowledge, investors have no choice but to pull the plug."

Andrew Moss, the broking director at Rattner MacKenzie in London, explains that hospitals and medical centers that invest in innovative diagnostic or specialty treatment facilities often take out disability insurance on the medical specialist who is central to that multimillion-dollar investment in equipment and technology.

"It is not unusual," Moss says, "for the recruiting process to take upward of nine months to 18 months to locate a doctor with the correct specialty and the pioneering vision to develop an entire department, whether that specialty is radiology or orthopedic surgery."

More than 400 people in 30 states have become "pet advisors" over the past two years with the home-based business, Petlane. Most have joined the ground-floor opportunity based on the reputation of its founder, CEO and namesake: Lane Nemeth.

Before starting her mission to enhance the lives of companion animals with health and safety products, Nemeth was twice named Woman Entrepreneur of the Year for growing Discovery Toys from a small business in her garage to a $100 million enterprise. Nemeth sold Discovery Toys to Avon in 1997.

"This company and our mission would carry on if I were not in the driver's seat, but probably not at the same rapid growth we've seen because of the reputation I earned with bankers and vendors," says Nemeth. "Right now, Petlane cannot afford the cost of disability insurance because every penny of the operation has come out of my pocket."

At its peak, Discovery Toys had 40,000 consultants selling toys at home parties in North America and Japan. Nemeth had $1 million life insurance policies on her top five sales directors as well as a $5 million policy on herself. Yet, she never considered the need for disability insurance despite the fact she crossed the Pacific Ocean often keeping tabs on her empire.

"If the CEO of a $10 million company has not built an infrastructure that can step in and take over, that CEO should be fired," Nemeth says. "When Discovery Toys was a $100 million company, our employees and investors needed financial protection."

STOPPING TRAFFIC

At the other end of the economic spectrum is Mercedes "Mama Jo" Busche, who owns and operates Mama Jo's Traffic Control Inc. in Salem, Ore., a $2 million business employing 130 full-time and seasonal employees. She admits her first contracts to supply traffic safety supervisors for state highway projects were awarded partially because her business was woman-owned.

Today, her company thrives on government contracts and private-sector business. Both have come to rely on the quality of service and the dependability of her personnel.

Busche provides employment to dozens of single mothers, many of whom had been living in their cars before picking up a yield sign and donning an orange vest and hard hat. Busche just turned 60 and suffers from ongoing back problems. It's not unusual for her to conduct business from a horizontal position from a makeshift bed set up near her office.

When asked about finding temporary relief from her day-to-day obligations, her reply was simple: "There is nobody else," she says.

"Everything's stored right here in my head. My daughter can make out schedules and sign checks, but I am the one who the state wants to talk with before they award new contracts."

"Insurance?" she asks sarcastically. "I'm a Christian woman working in a man's world. Insurance would be a sign of weakness and a clear indication that there was a possibility I might not be around here to fulfill my obligations."

PROTECTING TINSELTOWN

Paul Jablon lives in a make-believe stratosphere somewhere between the gritty traffic supervisors employed by Busche and high-priced corporate CEOs.

As president of The Jablon Group in Los Angeles, Jablon has carved out a comfortable niche writing short-term disability insurance for both movie studios and celebrities in Hollywood.

His policies have provided financial security for everybody from movie stars who insist on flying their own helicopters to the set, to screenwriters with contracts that rival those of all-star ballplayers.

Like ballplayers, screenwriters are often contracted for three to four years with six-figure incomes. Instead of supplying home runs, screenwriters are challenged to provide the framework for next season's Hollywood blockbuster.

Studios use disability insurance to guard against the unlikely possibility that a screenwriter could suddenly become sick or disabled, leaving the studio without box-office revenue.

Entertainers are often more of a corporation than a single individual. If a headliner suffered permanent disability, the star would not suffer alone. In addition to delayed production schedules and lost personal appearances, entertainers employ support personnel and personal assistants who literally depend on the dictum that "the show must go on."

Salaries and theatrical commitments are payable whether or not the featured performers are able to take the stage. Permanent total disability coverage from HCC, for instance, provides limits high enough to replace lost income, fund corporate sponsorships, subsidize partnership buyouts, finance mergers and acquisitions, and provide capital for loan guarantees.

The time-honored theater expression "break a leg" is used to wish actors good luck, but producers and directors do not mean the term literally because, if it really happened, most thespians don't have adequate short-term disability coverage. An actor's income potential is often too high to cover, too hard to predict and too difficult to calculate for standard carriers, says Bill Hubbard, president of HCC Specialty Underwriters.

Because of the "personalities" he works with on a daily basis, Jablon is thankful to brokers and underwriters, such as Kathy Bouras at HCC, who have customized policies that grant limits far beyond those found in the standard market, often without mandatory physical exams or exemptions.

"Normal disability insurance only provides up to 60 percent of a person's income, and that amount is normally capped at $15,000 per month," says Jablon. "Many celebrities could not, and will not, live on a mere $15,000 every month. That's where this specialty insurance comes in."

Jablon points out that in some more unusual cases, HCC designed insurance packages to protect conceptual corporations from the risk of losing millions of dollars in lost potential income.

Coverage is available for as much as $40 million for high-income individuals, with $10 million payable for each occurrence of accidental death or dismemberment, without exemptions for acts of war or terrorism.

Hubbard says that premium rates for key-person disability coverage must be customized for virtually every application.

"Rates are all predicated on age, occupation, sum insured amounts (reinsurance), travel schedule and location of the insured, and, of course, medical history," says Hubbard. "All these factors are brought together in order to determine the final, overall rate."

Hubbard also says education is the key to reaching more clients. The president of HCC has positioned key-person disability as an opportunity for agents to expand their own portfolio by providing more service to existing clients.

"Many of the studies done on death and disability date back as far as 1985," says Dorr. "With advances in medicine and people living longer, the need for disability insurance far outweighs life insurance.

"A key salesman, a vital software writer or the CEO of an innovative company is every bit as valuable as a running back or an all-star center fielder to the financial health of that company."

The octogenarian pilots and engineers at Aviation Partners are proof of that fact.

DAN AZNOFF lives in Bellevue, Wash.

August 1, 2006

Copyright 2006© LRP Publications