Establishing a strong reputation with your customers and clients is as time consuming as it is rewarding, but just one crisis could irrevocably tarnish your reputation. Without the right coverage, this could ruin your business. The Economist Intelligence Unit, a group that provides international forecasting and advisory services, estimates that 75 percent of a business’s value is directly attributed to its reputation. As a result, knowing the options to protect your reputation is more important than ever.
Health and safety incidents, product recalls and regulatory investigations are just a few of the incidents that have the potential to damage your reputation; and, since social media and other online sources have significantly changed the traditional news cycle, you may only have minutes to respond to a crisis and protect your reputation.
Though reputation coverage is a rather new concept in the insurance industry, a number of standalone and packaged coverage options exist that can help mitigate your risk.
Because standalone reputation policies are so new, only a small portion of insurance providers offer them. Part of the difficulty in the development of reputation insurance is converting a somewhat intangible aspect of a business—its reputation—into a tangible policy.
This has led to a large range in coverage limits as standalone policies continue to evolve. Current coverage limits can be as low as $1 million, or they can reach into the hundreds of millions of dollars. As a result of this and conjointly high premiums, standalone policies are generally purchased by large businesses that have the most exposure to reputational risks—and the most to lose if a crisis should occur.
Policies can cover only losses, only crisis management expenses or a combination of the two. Any compensation for losses must be attributable to a covered reputation risk, and some providers may conduct customer surveys to determine the exact amount of compensation. Policies that provide crisis management compensation may also provide businesses with a team of public relations experts to consult before, during and after a crisis.
As an example of standalone policy coverage, a manufacturer may purchase a reputation policy in the event it unintentionally creates an environmental hazard during business operations—a situation that would undoubtedly result in significant public backlash. Depending on the specifics of the policy, the manufacturer would be reimbursed up to the coverage limit for lost business that resulted from reputational damage, ongoing crisis management costs or both.
Standalone reputation coverage can be triggered under different circumstances depending on the specific plan; the most common of these are named risk events or a significant rise in negative media coverage on the covered business. Businesses that purchase standalone reputation policies may be aware of a variety of risks that could trigger coverage and can customize their policies to address them.
For businesses that don’t need the generally large coverage of standalone policies or that want to wait for reputation insurance to develop, many traditional policies can be packaged with a crisis management endorsement. Damage to a business’s reputation is often the result of other risks, so adding crisis management endorsements onto specific policies can be an effective way to cover reputational risk.
For example, a large-scale cyber attack can severely damage a business’s reputation. If a business has cyber insurance coverage with a crisis management endorsement, it will effectively be covered for any reputational damage. In this way, you can identify the largest risks to your business’s reputation and select specific coverage.
Selecting the Right Coverage
Reputation is key to a business’s value, and knowing which coverage is most appropriate for you is vital.
Standalone policies are generally meant for large businesses with a wide variety of reputational risks and are accompanied with accordingly high premiums and coverage limits. Though they cover a wide variety of risks, these policies are still relatively new and have yet to fully develop.
Packaged coverage, however, does not offer the broad coverage that a standalone policy does. For example, if it can be shown that a cyber attack was the direct result of an employee’s negligence, then losses may not be covered under a crisis management endorsement. This situation could become an even greater reputational crisis to a business than a regular cyber attack, and would be covered under a standalone policy.
Contact your Barrow Group representative today. We can help you identify the risks to your business’s reputation and find the best coverage for your needs.