Reputation insurance: a product in search of a market

Warren Buffett

Few statements sum up the value of managing and protecting a reputation – the principal role of public relations – than this from Warren Buffett: “It takes 20 years to build a reputation and five minutes to ruin it.”

A reputation is not easily attained or purchased: a company or organization develops and invests in it over years of consistent, ethical practices. Yet one case of poor judgment, corner cutting or scandal can put that reputation – acknowledged so often as a company’s “most important asset” – at serious risk.

With commentators, executives and directors so concerned about new risks to reputation – for example, intense competitive pressures, or the possibility of negative publicity “going viral” via the Internet or social media – it would seem that the best way to follow Buffett’s advice would be to ensure that reputation management is viewed as a role of top management, with reputation management professionals “at the table” with top execs. And, that’s the case with many successful, leading companies.

It therefore seems illogical, inconsistent and unnecessary that several leading insurers have proposed addressing reputational risks with a product – reputation insurance — that sends just the opposite, wrong message. These are liability insurance policies that cover the costs of responding to such threats as adverse publicity. Policies cover the costs of the counsel and assistance of public relations firms, advertising, social media campaigns and the monitoring of a company’s brand perceptions.

Please note: I use the terms “public relations” and “reputation management” interchangeably.  Several years ago, whether to better describe the profession or to combat the negative attributes associated with the term “public relations,” many in this profession described their work as reputation management. Whatever the term, managing a reputation with all audiences and stakeholders is at the heart of the field of public relations.

Reputation insurance products have not been developed without thoughtful consideration of reputational risks and how to manage them. For example, they can provide the client with access to an experienced public relations firm, enlisting the help of expert reputation management professionals.

Yet that doesn’t outweigh three significant weaknesses currently reflected in reputation insurance:

  • First, it’s reactive. For the most part, the coverage provides funds for services and counsel needed to respond to a public relations crisis.  Crisis communications are essential tools for any organization with a public reputation, but they need to arise from comprehensive plans developed in advance of any contingency.  Even more important, developing a strong reputation to begin can provide an organization with a reservoir of goodwill to help it overcome a crisis. Acting only when the crisis is happening can be too little, too late.
  • Second, if a company doesn’t activate a policy and utilize these services until after a crisis has occurred, it’s already playing “catch-up” in its efforts to restore its reputation, and may be vulnerable to various threats to relationships with its various stakeholders.
  • Third, it doesn’t cover the real damages that may occur following a crisis, nor can it.  Such damages can include a decline in stock price, loss of market share or unfavorable public opinion. Yes, those factors can be quantified, and all are indicators of a company’s reputation. But paying for financial damages is not the same as restoring a company’s reputation.

Perhaps the biggest deficiency of the concept of reputation insurance – at least, as reflected in current product offerings – is its incomplete understanding of the practice of public relations.  By emphasizing media relations in crisis situations, it ignores the role and importance of building strong relationships with an organization’s audiences and constituencies; for example, investors, employees, regulators, elected officials, suppliers and other organizations, as well as the news media. Simply equating reputation management with media relations fails to acknowledge the full scope of the practice of public relations, and what is needed to manage a public reputation.

One such reputation insurance product underwritten by a Lloyd’s of London syndicate reportedly is part of directors’ and officers’ (D&O) liability coverage, and would “exculpate” directors and officers from the damages resulting from an organization’s reputational risks. That may be an innovative development in D&O liability insurance, and it protects directors and officers, but it offers little or no protection to a company’s reputation.

Interior, Lloyd’s of London

I would not, however, suggest that the work of insurers in this area simply be dismissed.  In fact, public relations agencies and professionals could benefit from the work being done by insurers to quantify, evaluate and analyze reputational risks.  The analytics being employed regarding these and other risks could provide valuable information for corporate executives – and their public relations counselors – in monitoring and assessing possible threats to a company’s reputation.

But if a corporate executive wants to insure his or her company’s reputation, better to invest in the people and expertise needed to build, enrich and maintain that reputation over the 20 years suggested by Buffett, rather than buying a policy to deal with the aftermath of the five minutes it can take to destroy it.


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