The revelations surrounding Tiger Woods' infidelities have helped one broker promote a new coverage aimed at organizations that built their branding campaigns around a celebrity whose reputation becomes tainted.
For more than two months, New York-based insurance broker DeWitt Stern has worked on developing a "Reputation Risk Insurance" product for the entertainment, arts and advertising risks in which the firm specializes, explained LeCount Moore, managing director for the firm.
Then on Thanksgiving, Tiger Woods crashed his Cadillac into a tree and a marketing opportunity was born.
The broker announced it would introduce its product at the beginning of 2010, citing the Tiger Woods drama and how such negative press can undermine a company's marketing campaign and bottom-line profits.
"It was pure coincidence," said Mr. Moore, noting the brokerage saw a prime opportunity to roll out its product when the scandal broke and the Accenture consulting firm pulled its "Go on, be a Tiger!" ads featuring the iconic golfer.
However, the reaction to the announcement was unexpected, he admitted, citing scores of press inquiries, including the United Kingdom's BBC.
DeWitt Stern said its insurance will "protect brands, corporate entities and advertisers against losses incurred from reputational crises," compensating policyholders "for both the cost of crisis remediation and actual loss of revenue following a public relations crisis."
With the "viral nature of media today" in a world of instant messaging, texting, YouTube and Twitter, where any news or rumor can spread quickly and damage a company's reputation, DeWitt felt clients were primed for this kind of coverage.
Last month, Mr. Moore said DeWitt was lining up underwriters at Lloyd's for the program, with the goal of creating a $50 million facility. The program would also provide risk management solutions to deal with reputational risk issues.
Lori Shaw, sports and leisure practice leader for Aon Entertainment Group, said that quite a few companies use celebrity endorsements in their advertising, while noting that in the United States there are usually moral clauses in the contract allowing sponsors to break ties with the individual spokesperson should they do something criminal or against public policy.
However, while there is usually insurance coverage in place in case of a celebrity spokesperson's death or disability, allowing the company to recoup costs and expenses for the campaign and launch a new one, coverage for damage due to a celebrity scandal is harder to come by.
The trickiest part is creating a policy that will protect revenues or profits from the loss of a campaign, said Ms. Shaw. That means being able to show something quantifiable about the campaign's effects on the company's business. "Sometimes [the client] believes it's a better idea to bear that risk than to transfer that risk because of the perceived cost," she noted.
Bill Harrison, managing director of Aon's crisis management practice, advised that the best strategy for any company when a celebrity causes an embarrassing situation is to cut ties early before there is reputational damage to the sponsors.
He said that Accenture–no stranger to reputational risk, given its prior association with the Arthur Andersen accounting firm–indicated its client base had not yet been damaged by the firm's affiliation with Tiger Woods and wanted to make sure there was no such impact going forward.
"It's not a huge insurable risk from a corporation's point of view because they can just get rid of the person," he said.
As for whether Mr. Woods has any coverage for the loss of his sponsors, none of the brokers were aware of any such policies in place. However, they did note that insurance coverage for harm done to a company because of the adverse behavior of a celebrity is popular in Europe.
Mr. Moore said he believes it will just be a matter of time before this type of coverage gains traction in the United States.
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