Launching a business and building it into a strong, recognizable brand takes time, effort and investment. Tarnishing that brand, though, only takes one major crisis. Loss of reputation is a big risk for any brand, potentially costing future business or even forcing a company to close its doors entirely. Luckily, insurers recognize that risk and underwrite it like other threats facing businesses.
But what exactly is "reputation insurance," and how does it work? How can something as abstract as reputation be quantified and rolled into an insurance policy? And is reputation insurance right for a small business?
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What is reputation insurance?
Reputation insurance is a catchall term that refers to a variety of protections found in a variety of insurance policies. Sometimes it serves as a stand-alone product, but most times it comes baked into more comprehensive coverage, said Jim Loughlin, senior director of sales at CoverWallet.
"If you're looking specifically at reputational risk insurance, there's a broad aspect to it," Loughlin said. "There is [reputation] coverage in some standard policies you already buy, all the way down to specific reputational risk policies geared toward covering an actual loss on your balance sheet due to a sales drop based on a reputational incident."
Some of the most common reputational risk insurance comes in the form of:
- Business owner's liability insurance: Some of the most basic liability insurance policies can include reputational risk coverage. The coverage in this type of insurance is often minimal, including events like libel or slander lawsuits and advertising injury, which could occur because of accidental use of false or offensive information in marketing materials.
- Cyber threat insurance: Cyber threat insurance is focused specifically on data disseminated online or communicated across a company's network. Reputational risk coverage included in this type of policy generally relates to activity on social media and sensitive customer data that could be compromised, resulting in harm to the brand's reputation.
- Crisis management insurance: Crisis management insurance will cover the emergency use of public relations teams to mitigate any future damage that could occur to a brand's reputation following a public incident. For example, if your business suffers from a data breach, crisis management insurance would kick in and retain a PR firm on your behalf to address the issue in a proactive way.
- Reputation insurance: Specific reputation insurance is typically reserved for very large companies and is less common than the forms of reputational risk coverage found in wider-ranging policies, Loughlin said. These policies cover an actual loss in sales resulting from a brand-damaging incident. However, this coverage can be difficult to quantify and underwrite, meaning premiums are significantly more expensive than those associated with more common insurance policies. [Interested in finding the right online reputation management service for your small business? Check out our best picks.]
How could reputation insurance help my small business?
Since stand-alone reputation insurance is often cost-prohibitive for small businesses, most rely on the crisis management coverage set out in their business policies, said Michael Perry, vice president of property and casualty at CBIZ.
"The main risk is that a crisis associated with your business will bring with it so much hardship that the survival of the business is unlikely," Perry said. "Small companies … often have some limited coverage for crisis management. Most policies also afford coverage for slander and/or trespassing, for example, which may cause reputational damage."
But, he added, "every carrier is different."
According to Loughlin, small business owners considering augmenting their standard policy with one that provides more crisis management or cyber liability coverage should ask themselves a few questions to gauge how significant a risk they'd be taking without it:
- How many sensitive records do you retain?
- Have you ever had a breach in the history of your company?
- What are your revenues, and how would they be at risk in the event of an incident?
These are the same questions underwriters consider when drafting reputational risk policies for small business. When you consider that buying insurance is essentially shifting the burden of risk from your own company to an insurance company, the answers to these questions become informative as to whether you should purchase more insurance. According to Loughlin, cyber liability insurance remains the most common policy required by small businesses today.
"Discussions of reputational risk have been swirling around the insurance industry for a long time," Loughlin said. "Experts are always looking at ways to better insure it. The real highlight of today's day and age is cyber liability and crisis management resulting out of data breaches."