A business-related crisis that causes negative publicity could cause financial damage. Reputation insurance may be able to aid.
- Reputation insurance is a way for a brand to protect itself from the financial consequences of negative publicity and public image concerns.
- The majority of reputation insurance is part of a larger policy, like general liability insurance.
- Reputation risk insurance protects against loss of sales if an image of a brand is damaged.
- This post is written for small-scale businesses that are worried about their image and how they can safeguard their business from public attention.
The process of launching a business and building a brand requires effort, time and capital. But, tarnishing the image is only a incident. Reputation loss is a serious danger for any brand since it could impact future profits or force the company to shut its doors.
Fortunately, insurance companies recognize the risk and cover it in the same way as other business risks that they face. What exactly is reputation insurance and how do they work? What can something so intangible as reputation get measured and integrated into an insurance contract? What is the best type of reputation insurance for small businesses?
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How do you define reputation insurance?
“Reputation insurance” is a broad phrase that refers to various protections offered in the business insurance policies. In some cases, reputation insurance can be used as an independent product, but it is usually part of a larger coverage when you select small business insurance as per Jim Loughlin, senior director of sales at CoverWallet.
“If you’re specifically interested in the insurance for reputational risk it’s possible to find a broad element of this,” Loughlin said. “There is coverage for reputation in the standard policies you already purchase up to specific policies for reputational risk specifically designed to cover an actual loss to your balance sheet as a result of an increase in sales due to the reputational damage.”
They are among the most commonly used kinds of insurance for reputational risks.
- Liability insurance for business owners: Some of the most basic liability insurance policies offer the coverage of reputational risk. The protection offered in this business insurance is usually very limited, excluding events such as lawsuits for slander or libel and advertising injuries. These incidents could be the result the accidental inclusion of offensive or false information in marketing documents.
- Cyber risk insurance Insurance for cyber-related threats specifically addresses security threats to data that is stored on the network of a company. The coverage for reputational risk in this kind of policy usually focuses on activities on social media as well as sensitive customer information that may be compromised and cause damage to the reputation of the brand.
- Risk management for crises Crisis management insurance protects the need for emergency recourse to public relations personnel to minimize any damage that may be incurred to the reputation of a brand in the aftermath of a public incident. For instance, if your company is affected by an incident of security breach and you are unable to resolve the issue, crisis management insurance will be in place and hire an agency of PR in your place to deal with the problem immediately.
- Reputation insurance Particular reputation insurance is usually reserved for large corporations and is not as popular than the types of risk-based reputation insurance offered in broad-based insurance policies Loughlin said. The policies are designed to cover a loss in sales due to an incident that damages a brand. But, the coverage may prove difficult to measure or underwrite which means that premiums are considerably higher than those that are associated with the more typical insurance policies.
What can reputation insurance do for my small-sized company?
Since reputation insurance on its own is usually prohibitive for small companies, many depend on the crisis management insurance stipulated in their business policies explained Michael Perry, vice president of property and casualty for CBIZ.
“The principal danger is that a crisis related to your business will cause so much stress that the future of your business is not likely,” Perry said. “Small businesses … typically only have a limited amount of insurance for managing crises. The majority of policies provide coverage for trespassing or slander for instance and can result in reputational harm.” However, he noted, “every carrier is different.”
According to Loughlin the owners of small businesses who are interested in enhancing their existing policy to provide greater crisis management or cyber liability protection must ask themselves a few questions in order to assess the magnitude of risk they’d take without it:
- What number of sensitive records do you keep?
- Have you ever experienced an issue in the past of your business?
- What are your earnings and what could be affected during the case of an accident?
These are the exact issues that insurance companies consider when writing reputational policies on risk for small-sized businesses. If you take into consideration that buying insurance is in essence shifting the risk from your business towards an insurance provider, responses to these questions should inform you whether or not you need to purchase additional insurance. According to Loughlin Cyber liability insurance is the most popular policy that small-scale companies require in the present.
“Discussions about reputational risks have been rumbling throughout within the industry of insurance for a long period,” he said. “Experts are constantly looking at ways to increase the amount of insurance they offer. One of the most exciting aspects of our modern day is the cyber-related responsibility and crisis management arising from breaches of data.”
Insurance for reputation costs
The cost of reputation insurance is based on a variety of factors, including the size of your business as well as its revenue and the sector you work in. Certain companies are more vulnerable than others in certain kinds of loss. For instance healthcare companies could be the victim of a cyber attack which compromises personal and private information.
Smaller businesses typically get reputation insurance when they purchase a general liability plan or cyber insurance policy, or both. Small business owners is likely to find an insurance policy for general liability to begin at $500 per year , and increase depending on the company’s size. If you are purchasing a cyber insurance policy the average cost is 1500 dollars per year.
A reputation insurance policy that is standalone needs specialized underwriting, therefore seeking a quote is the most effective method to estimate the cost.
What’s the difference between assurance and risk-based insurance for reputation?
There’s a small distinction in the two types of insurance: reputation insurance as well as risk insurance. In the case of reputation insurance, it covers expenses including legal costs for when your reputation is taken an injury and reputation risk insurance in particular protects against the risk of loss in sales that result from the damage to the image of your brand.
Reputation insurance usually forms part of a larger, more extensive policy, like general liability policies. Reputation risk insurance is usually an individual policy that requires specific underwriting expertise to understand the risks that come with the brand’s name and its reputation.