Launching a business and building a powerful brand takes time, effort and investment. However, tarnishing that brand takes only one major crisis. Loss of reputation is a significant risk for any brand because it can potentially impact future earnings or even force a company to close its doors.
Luckily, insurers recognize this risk and underwrite it as they would other insurance risks businesses face. But what 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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“Reputation insurance” is a catch-all term for various protections found in business insurance policies. Sometimes reputation insurance serves as a stand-alone product, but it usually comes as part of more comprehensive coverage when you choose small business insurance, according to 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.”
These are some of the most common types of reputational risk insurance.
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.” However, he added, “every carrier is different.”
According to Loughlin, small business owners interested in augmenting their standard policy with one that provides better crisis management or cyber liability coverage should ask themselves a few questions to gauge how significant a risk they’d be taking without it:
These are the same questions underwriters consider when drafting reputational risk policies for small businesses. When you consider that buying insurance is essentially shifting the burden of risk from your company to an insurance company, the answers to these questions should tell you whether you should purchase more insurance. According to Loughlin, cyber liability insurance remains the most common policy small businesses require today.
“Discussions of reputational risk have been swirling around the insurance industry for a long time,” he 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.”
If you have an online presence, consider getting cyber insurance to mitigate the damage of a data breach, and ask your insurance carrier if your general liability policy has provisions to protect you in the event of negative public scenarios.
Reputation insurance costs depend on several factors, including your company’s size, its revenues and the industry you serve. Some companies are more at risk than others for certain types of losses. For example, a healthcare company may be the target of a cyber breach that compromises private and personal information.
Most small businesses will get reputation insurance as part of a general liability policy, cyber insurance policy or both. A small business owner can expect a general liability policy to start at $500 per year and increase based on the company’s size. For those adding a cyber insurance policy, average policy costs are $1,500 per year.
A stand-alone reputation insurance policy requires specialized underwriting, so getting a quote is the best way to determine cost.
Most business owners can save money by bundling reputation insurance with one or more of their other insurance policies.
There is a slight difference between reputation insurance and reputation risk insurance. Where reputation insurance covers costs – such as legal fees – when your reputation takes a hit, reputation risk insurance specifically covers the potential loss in sales resulting from damage to your brand’s public image.
Reputation insurance is usually part of another, more comprehensive policy, such as a general liability policy. Reputation risk insurance is typically a stand-alone policy that requires specialized underwriting to fully understand the risks associated with the brand’s name and reputation.
Kimberlee Leonard contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.