“It takes 20 years to build a reputation and just five minutes to ruin it. If you think about that, you’ll do things differently.” –Warren Buffett
Owning a business is a dream for many people, but to truly be successful, you’ve got to establish a quality reputation. A solid reputation will help retain loyal customers and attract new ones. Since customers are the driving force behind your revenue, you want to make sure they feel good about purchasing your products. When they don’t, things can get very bad very quickly. We’re talking about PR disasters, and you know what they are — you hear about them all the time in the news. BP anyone? Shell Gasoline? Facebook? The list goes on and on. You know you’ve truly had a PR disaster when there’s a t-shirt made about it.
We all remember the infamous oil spill and the backlash BP suffered as a result. The fact is that something like that can happen to any business, of any size, under different circumstances. In fact, it’s happened enough that some innovators in the insurance industry are pitching reputation insurance, which is meant to protect companies against financial loss when disaster strikes. With today’s platforms online and considering that now building a reputation isn’t just about word of mouth in the town you live in, it’s really not an insurance product that would be a waste of money either.
When a Good Reputation Goes Bad
Last year, Financial News reported how former Goldman Sachs staffer Greg Smith left the company and how his departure affected their overall reputation. Foregoing the normal two weeks’ notice, Smith instead wrote an op-ed piece to the New York Times where he said that Goldman Sachs had become a “toxic” business and was not concerned about interests of their clients. Now just imagine how many people read the New York Times. There’s a print edition, e-editions, and articles online. People share this information on Facebook and Twitter and repost it on their blogs. That doesn’t even include Tumblr, StumbleUpon, Pinterest, Reddit, Quora, Storify, Diggit — need I mention more?
Articles were written referencing the original op-ed piece and word traveled. Ultimately, Goldman Sachs saw a $2.15 billion decline in its market value. Reputation insurance could protect against this type of loss and also help guide a company out of the storm.
The Economist Intelligence Unit estimates that as much as 75% of your business’s value is directly attributed to your reputation. When the success of your business rides on one thing, you need to protect it, and several insurance companies are here to help.
In 2011, Aon, one of the world’ biggest insurance companies partnered with WPP, one of the world’s largest marketing agencies, and Zurich Financial Services, another prominent insurance company, to offer a reputation policy that would pay out a limit of $100 million for any reputation-related incidents. The policy comes in at a reasonable $5 million a year, so although you might be rushing to the phone to add this to your policy, you will probably have to wait a few more years. The initial product was only offered to 30 of the top global companies like Dell and Tesco. (If you don’t remember Dell, they were a computer company. Amazingly, people used to buy Dell computers instead of a Mac. Part of their advertising success came from their “Dude, you’re getting a Dell” commercials, featuring a spokesperson whose own reputation was damaged when it was discovered that he liked to live it up Cheech and Chong style. I think he may be unemployed now and maybe got a jail cell instead. See what I just did there?)
There are other companies making the market competitive for this product. American International Group (AIG), who is no stranger to PR flunks themselves, is offering “ReputationGuard” through their subsidiary Chartis. If you choose to purchase this policy, it will provide you with the expertise of PR firms Burson-Marsteller and Porter Novelli. Burson-Marstellar was the firm that led AIG through their personal bail-out crisis so their partnership is a tribute to their effectiveness. The policy will allow holders to tap into the expertise of either firms even before something terrible happens.
But if damage control is needed, ReputationGuard can cover anything from recalls to company scandals. As for cost, it’s going to take some time to develop set models due to the fact that this is a new product and setting premiums is essentially based on risk. Companies will need to be evaluated on an individual basis, but Tracy Grella, president of Chartis’s professional liability department, said that the premiums will start at around $10K per year — a drop in the hat compared to AIG’s policy.
Dewitt Stern, an elder in the insurance and risk management industry, also offers a very similar product called “Reputation Risk Insurance.” If a policy holder gets caught with their pants down, this policy can not only cover the losses, but will also compensate for the cost of repair.
Le Conte Moore, a managing director at Dewitt Stern told the PR Newswire, “The Tiger Woods scandal shows how quickly reputations can become tarnished in today’s fast-paced environment. All the planning in the world cannot protect a brand manager against the unforeseen. Reputation Risk Insurance will provide those forward-looking brand managers and advertisers with a smart and attractive way to protect their investments.”
What Moore says makes tons of sense, and don’t all business owners want to protect their investments? The obvious answer is yes, but some wonder whether reputation insurance is truly worth the cost or is it just another bell-and-whistle combo to add to your collection?
Do You Need Reputation Insurance?
For the average business owner, reputation insurance is out of reach at the moment and the cost for protecting yourself against a few bad Yelp reviews will far outweigh the benefits. It was developed for the big kids on the playground like BP, who dealt with the Deepwater Horizon spill and Accenture, who dropped Tiger Woods after the discovery of his Clinton-esque activities. If you think you have the chance of experiencing anything similar and can afford the premiums, reputation insurance might be a good investment. It’s still hard to predict the unexpected even for the most seasoned insurance and crisis management companies, so the best thing businesses can do is employ good old-fashioned PR tactics. If you constantly evaluate your business practices for reputation security, you might save yourself and your business from an impending collapse.
One day, reputation insurance will probably be available for businesses of any size, and even those in freelance positions like writers or graphic designers could benefit from it. Ultimately, all you really do have is your reputation, and given the platform every single person is now on thanks to the Internet, it’s crucial to protect it. Doing so obviously takes way more work than it used to, but even if reputation insurance can one day be bought by any business for $5, that work would be the best reputation insurance you’ll ever have.
Follow Desiree on Twitter @DesireeBaughman.