Reputation Insurance Is a Wise Investment

Businesses and individuals at risk of being maligned in online forums, social media, blogs, and websites should look into buying insurance specifically intended to guard their reputation on the Internet. Pro or con?

Pro: New Media Demands New Insurance

We insure the things most important to us: our life, health, home; in business, our corporate risk, revenue, key people. We insure these things because we know how precious they are.

Reputation is the most important asset a company possesses. The Economist Intelligence Unit has found that 75 percent of a company’s value is tied up in its reputation. When a company’s name gets tarnished because the chief executive is caught up in a scandal, an environmental disaster occurs, or workplace conditions are criticized, revenue falls, the stock price slides, and the acquisition of new customers slows.

Today, reputation lives on the Internet. More than 90 percent of consumers use the Web to research companies and products before buying, and 80 percent make decisions based on what they see. If a disgruntled former employee is slandering your business online, customers won’t take the time to evaluate your company’s products further—they’ll do business with your competitor instead.

There are two kinds of reputation insurance that matter. The first is “informal insurance:” building up digital reputations before problems occur by making sure companies control the top 20 Google results for their names and own the Twitter, LinkedIn, and Facebook accounts for those names. Businesses manage their reputations proactively by making sure the Internet accurately reflects their offline successes. When such companies suffer Internet attacks, they already enjoy “prophylactic” layers of technical protection.

The second is “formal insurance:” Over the past 24 months a growing number of organizations have been demanding dedicated reputation insurance products in the same way they buy errors & omissions insurance, data breach insurance, and professional liability insurance. It’s a classic use of insurance, a classic hedge, and it makes perfect sense.

When 75 percent of a company’s value is tied up in its reputation, a big insurance market seems not just smart but inevitable.

Con: PR Is the Safest, Soundest Measure

Having the protection of an insurance policy is a reassuring thought for many business leaders, but it does not address why a company would require reputation insurance in the first place. That often boils down to reassessing how it relates to its stakeholders, something insurance policies were never meant to do; rather, it is the forte of experienced public relations and communications professionals.

Insurance is just that—an indemnity for when something happens. It doesn’t help a company understand the potential consequences of its actions better or provide counsel to mitigate the impact of a business’ actions before they are set into motion.

But public relations does.

Purchasing reputation insurance to hedge one’s bets against a possible corporate crisis may cause some executives to see the policy as a panacea for their management shortcomings. It becomes a short-term fix to what is often a long-term problem.

In the digital age, a company’s reputation is perhaps its most valuable asset. A 2011 study by the Public Relations Society of America found that 97 percent of American business executives believe CEOs should have a well-developed understanding of the role of corporate reputation management. That requires something far more nuanced than a reputation insurance policy.

It requires a public relations team that provides strategic communications counsel to, and is a part of, a company’s C-suite.

Insurance is useful when the outlook looks dire; however, it should be the last resort. Just as exercising and eating healthy foods can stave off illness, strategic and proactive public relations can serve as preventive measures for a business, no matter the situation it may face.

Opinions and conclusions expressed in the Debate Room do not necessarily reflect the views of Bloomberg Businessweek, Businessweek.com, or Bloomberg LP.

Reader Comments

John Millen

This is a fair overview of the issue of reputation insurance.

As one who has spent many years in the insurance industry and reputation management, I'd note that the critical option not mentioned is the development of a specific crisis communications plan.

A study last year by PR firm Burson-Marsteller found that only 54% of the respondent companies had crisis communications plans.

This is a sad fact because even without social media, firms fail to get in front of a crisis without a plan. Even a few hours make a huge difference. With social media's ability to make a bad scene go viral, minutes lost can kill a company's reputation.

Keith Trivitt

John - That's a great point about the need for a viable crisis communications plan. As the Burson-Marsteller report you cite details, there exists far too little understanding of the role and value of strategic PR and crisis comms among American and global corporations. That is certainly an issue we are trying to rectify through our work advocating the value of public relations (see also our recent announcement, via Businessweek, of the introduction of a curriculum program to bring PR and reputation management courses to MBA programs: http://buswk.co/ucqSDI). But, clearly, there is more work that needs to be done in this regard.

Thanks for sharing your thoughts and adding some additional perspective to this important debate.

Keith Trivitt
Associate Director
Public Relations Society of America

Bill Holland

In almost every venture, whether personal or business, being proactive is the preferred method. Plan ahead and establish well-thought-out methods that will establish you as a viable participant in the endeavor at hand.

Reactive efforts are things that are done after a devistating event has occurred. Insurance falls into this category. It's a good thing to have if nothing else is in place.

Darren Meade

Cyber Terorrist -

The most overlooked issue at hand is the existence of an illicit "injection hacking" code which has the ability to exploit vulnerabilities on consumer advocacy websites such as Ripoffreport.com and search engine ginats Google, Bing, and Yahoo and take away the global application of freedom of speech by altering search results and ‘blinding’ content on the Internet.

Therefore insurance or PR plans are mute if this hacking code has been deployed against your person or brand.

The personal knowledge I have of people utilizing the hack own SEO, Cyber Forensics and Reputation Management companies.

Henry Lieberman

This is absurd. I had never heard of "reputation insurance" before this, and clicked on it simply to see if it was a joke.

The best way for a company to safeguard its reputation is to deserve and earn a good reputation. I suppose that never occurred to many companies.

Yes, there is the occasional Internet crazy who insults companies unfairly. But the best way to combat it is to defend yourself rationally and let the community consensus decide. Not PR. Not insurance.

For example, I often use TripAdvisor to pick hotels. In the reviewers there, even for good places, there is always the occasional negative review, and I've learned to not be swayed by the occasional negative if the consensus is positive.

Many companies want to feel free to screw their customers and insure against the consequences. Many companies are scared by insurers trying to drum up paranoia about the Internet community in order to sell their insurance. Neither is a positive development.

Further, it is important for the growth of the Internet as a medium for commerce that people trust it. I'm sure insurance will lead, if it hasn't already, to "shills" and PR guys and advertisers who falsely promote their companies under the guise of an "average customer" to manipulate reputation. It is important that that not happen.

Deserve a good reputation. Earn it. The Internet community will recognize it and give you business.

Henry Lieberman
Principal Research Scientist
MIT Media Lab

Garen suzan

Excuse me folks! This is the Ostrich Theory. Let's stick our heads in the sand and hope the problem goes away. Wait until your company organization gets dragged into an IP lawsuit or other lawsuit. Then your competitiors will bury you alive with bad press. The reason you never hear about thease problems is because the CEOs and Board of Directors beg to keep these issues out of public view and not impact the risk exposure to bad publicity. Welcome to the party!

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