Should you insure your reputation?

When external PR help in a crisis costs anything from £5,000 to £10,000 per day, should corporates buy reputation insurance policies?

Reputation threat: Malaysia Airlines is still dealing with the crisis of its missing flight MH370 (credit: Rex Features)
Reputation threat: Malaysia Airlines is still dealing with the crisis of its missing flight MH370 (credit: Rex Features)

The idea that a firm can insure its reputation is not brand new. But it is difficult to say that greater familiarity has bred popularity.

It is not for want of trying among insurers, of which at least six are currently offering some sort of cover designed to kick in when a company is hit by an incident that threatens its standing.

David Banks (pictured), a former insurance journalist who has worked in PR for five years, surveyed the market as part of his study for a CIPR diploma in crisis comms. "Most policies are insurance for a fixed term of the cost of PR advice after a crisis has hit. Another type provides indemnity for financial losses that can be attributed directly to the reputation crisis," says Banks.

One example of the former is AIG’s ReputationGuard policy (see 'The insurer's pitch' below), while the latter includes German insurer MunichRe’s reputational risk insurance, which focuses on consumer boycotts prompted by negative media coverage.

It promises to indemnify financial loss if the insured suffers a drop in profit that can be ascribed to consumer behaviour following a ‘risk event’.

The company seeking insurance can either specify a particular ‘risk event’ or choose an ‘all risks’ policy where any significant increase in negative media reporting is a trigger. The latter is costlier due to the need for constant media monitoring by an independent marketing agency to judge when reporting has turned negative.

The product is aimed squarely at finance directors, with the sell being that the financial compensation provides "sufficient liquidity when you really need it".

How these policies are marketed is easy to see, but which companies are buying them is not quite so obvious. Comms directors seem unwilling to engage on the topic, which suggests either that they are not interested at all, or that perhaps the first rule of having reputation insurance is you do not talk about having reputation insurance.

It is a possibility Banks puts his finger on in his study, which looks into whether reputation insurance is a suitable tool for a company trying to maintain and enhance its reputation.

Public perception

Based on research with business journalists, he concludes the media and the public would look even more dimly upon a company they had already judged to be at fault if they learned it was being compensated for that fault. "It actually brings additional risks for a company’s reputation – responses from the media and public show that they don’t like it when a crisis res­ponse is financially planned and motivated rather than heartfelt. Reputations are transacted in trust."

PRWeek teamed up with research company Question & Retain to ask 500 UK comms directors whether their company has reputation insurance. The response rate was too low to be statistically significant, but showed a small minority said yes, many more said no and most said they did not know.

The suggestion take-up is low is backed up by crisis comms veteran Mike Regester, who has worked in the field since the 1970s, and PRCA crisis comms group chairman Gavin Megaw (pictured).

Hang on, though. Could you be forgiven for thinking that crisis specialists in agencies might have an incentive to talk down reputation insurance policies? Might they prefer the management of stricken companies to come to them directly, with the sweat fresh upon their brows?

Not so, says Megaw – it would probably be commercially advantageous to tie up with an insurer. Both Hanover and Regester Larkin have had discussions with insurers about a partnership but have never been able to come to a satisfactory arrangement. One trade-off may be the size of the retainer offered by insurance companies versus the cost of resourcing people to be on-call.

Among the agencies that have struck up partnerships with insurers are Porter Novelli, Levick, Burson-Marsteller (see below for their relationships with AIG) and FleishmanHillard. While the former two work with AIG, the latter two did not respond to requests for comment about the topic.

However, other crisis PR agencies are sceptical about the efficacy of reputation insurance. Banks – who has just launched his own crisis planning and advice agency, called Stellenger – says his study turned him off the idea of it.

"It puts reputation decision-making in the wrong hands, i.e. finance directors, and it’s very difficult for communications people to claw it back," he claims. "It’s incompatible with issues management and other parts of the crisis life cycle."

Not a solution

Like Banks, Megaw feels that insurance offers a false sense of security if not backed by a longer-term reputation strategy.

"The fact is companies with a strong reputation find it much easier to get through a crisis. They have proactively sought to raise their reputation, so when they face an attack on their reputation, they are far better positioned to respond to it.

"Far-sighted business leaders look beyond cost savings. While the insurance cover may help bring the immediate media crisis to an end, it certainly doesn’t guarantee their reputation will survive."

The insurer’s pitch

Finding an insurer to talk through their reputation insurance products is difficult, possibly because it is not one of their best-selling lines of business.

However, AIG’s global head of professional liability Tracie Grella, who is based in the US,agreed to discuss its offering with PRWeek.

AIG has offered a product called CrisisResponse for more than ten years but introduced a newer product called ReputationGuard 18 months ago.

Its marketing literature claims it is "designed to protect a company’s reputation and brand value by providing an innovative insurance solution to assist policyholders with managing reputation threats".

Grella says ReputationGuard was introduced because risk managers told AIG that reputation was one of two big risk issues with which they needed help (the other was cyber risk).

The annual cost of ReputationGuard starts at $3,000 (£1,792) for $1m (£597,265) worth of cover and the maximum cover available is $25m (just under £15m) – CrisisResponse offers a maximum of $250,000 (£149,134).

"In-house comms directors are not our buyers," Grella says. "The kind of customer for this policy is a risk manager in a mid-sized company that makes annual revenue of up to $750m but doesn’t have more than one in-house PR person."

When calculating the exact premium a company pays, AIG factors in its historical record of encountering crises (or "risk events" in its parlance) and the type of industry it is in. Consumer-driven businesses are likely to pay a higher premium than b2b operators because AIG perceives they are likely to be more hurt by reputational problems.

The policy covers the cost of bringing in a PR agency – companies do not have to use AIG’s partners but it has negotiated discounted rates and two hours of free crisis planning advice from them – but also of running a targeted advertising campaign to ensure the company can get its message out to its customers and the public. It does not cover financial loss.

The PR agency partners for Reputation-Guard are international network Porter Novelli and Levick, a US agency that works with international partners.

When ReputationGuard was first launched, the agency partners were Porter Novelli and Burson-Marsteller. Grella declined to go into the reasons why Burson-Marsteller is no longer involved, and Burson-Marsteller’s US team did not answer requests for comment.

Policyholders can insure themselves either for a specific event or – unlike with CrisisResponse –  any event, and they have the power to decide when to make a claim.

Grella admits reputation insurance is not a significant seller in the context of AIG’s business. Its UK operation is not actively selling the policy, though it is possible for companies in this country and other countries to buy it from the US team.

However, AIG does offer reputation cover in the UK as an added benefit of other policies such as environmental damage.

She says AIG has sold "some" Reputation-Guard policies and the company later clarifies it has paid claims on its older product, CrisisResponse, and is in the adjustment process for several claims on Reputation Guard.

When invited to address the apparent lack of enthusiasm for the product among comms directors, Grella responds: "Clearly reputation is an enormous risk for an organisation and for organisations that are looking to offset some of the potential loss associated with a reputation event. This product brings value."

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