Insurers to Offer Reputational Risk Coverage
Dec 17th 2009 1:00PM
Updated Dec 17th 2009 4:47PM
Lloyd's of London once said it would insure any company or person against any risk or event -- at a price, of course. Corporations can now buy insurance that covers everything from hedges against bad weather to "key man" policies that make large payouts if a CEO dies.
Over the last few years, marketers including Gillette and Nike (NKE) have put tens of millions of dollars into building brand images based on a public perception of Tiger Woods, both as an athlete and a public figure. The "public figure" part has not turned out very well, so much of the endorsement money was probably wasted.
According to the FT, "DeWitt Stern, a 110-year-old US insurance broker, has already received expressions of interest from London underwriters about backing a reputational risk product it aims to launch early in 2010." This kind of coverage, which the paper says is sometimes called "spin doctor" insurance, is difficult to price accurately. There are very few companies spending large sums on endorsers, so the universe is small. Putting a price on a brand is difficult in a world in which brand valuations vary based on which research firm is doing the analysis. And, brand values are impacted by factors beyond endorsers, particularly figures on sales and profits.
Despite all of the issues with pricing reputation insurance, the product almost certainly has a future, at least short term. The number of celebrity and sports pitchmen whose reputations have been ruined or damaged over the last two decades runs from Pete Rose to Kobe Bryant. Woods is just the latest though perhaps most significant example. Famous people seem to have trouble behaving.
Douglas A. McIntyre is an editor at 24/7 Wall St.