Is reputation insurance a help or hindrance?

Communications advisor, David Banks, questions the effectiveness of reputation insurance as a means of crisis management

Reputation is transacted in a currency called ‘trust’. You can’t convince someone that you’re trustworthy by paying your way out of a problem – you can only do it by demonstrating and proving that you deserve their trust.

What do business leaders fear the most? Surveys show their biggest fear is ‘reputation risk’ – in other words, the danger that their company will suffer a major PR crisis so significant that it brings a financial loss. After high-profile disasters such as the BP oil spill and the stricken Costa Concordia cruise ship, where reputation damage was closely followed by financial woes, it’s not surprising that reputation risk now tops the list of corporate financial concerns.

In many ways it’s a victory for PR professionals that the subject of reputation is now at the top of the corporate agenda, but it’s insurers who are positioning themselves to gain the most. So-called reputation insurance is being offered by some of the most credible firms in the insurance industry and is already available to corporations in the Middle East.

In exchange for a regular premium, the insurer will provide a payout that is designed to help bring a company out of its reputation crisis. At least that’s the idea. The insurance payout is often tied to a public relations campaign, which is supposed to assist the crisis-hit company for a fixed number of weeks. PR professionals reading this might already be feeling uneasy about this financial ‘solution’ to reputation and will have some serious questions about it, just as I did.

How much can a new PR agency achieve after the crisis has hit? What happens when the plug is pulled on the agency’s help? How would the media and an angry public react to a crisis-hit company receiving an insurance payout? There were 24 questions like this and I interviewed journalists, social theorists, public relations experts and risk managers in an effort to find the answers.

One of the most telling question and answers was, “Would the media view a reputation insurance claim negatively?” The answer, after interviewing more than 80 journalists was an overwhelming negative response. The vast majority of mainstream journalists said their view of a crisis-hit company would suffer if they found out the crisis had led to a reputation insurance claim. Furthermore, journalists also said they would be suspicious and dismissive of any communications response that was triggered by an insurance policy rather than appearing as a genuine desire to be contrite or to put the record straight.

The reason this is important is that for a company in the middle of a reputation crisis, perception of management behaviour matters a great deal. When these perceptions are hindered, it could make the crisis deeper and longer. What it comes down to is this: Every company’s and every person’s reputation is transacted in a currency called ‘trust’ and not money. As soon as anyone tries to transact reputations in money, they are perceived to be doing the wrong thing. You can’t convince someone that you’re trustworthy by paying your way out of a problem. You can only do it by demonstrating and proving that you deserve their trust. When trust is broken, the only answers are sincerity, apology and a change of behaviour.

The insurers offering reputation insurance admit that the policy only provides an answer to the cost of a PR response and does not guarantee that public trust will be repaired or even improved. Furthermore the insurance claim pays for only a short duration of the overall crisis lifecycle. Most policies refer to PR support of several weeks or months, whereas PR textbooks show that the lifecycle of a serious reputation crisis – the type that is insured – often lasts for years.

With all things considered, could it be the real risk lies in the reputation insurance itself?

David Banks is an independent communications advisor who specialises in the insurance industry. Based in London, David spent four years living in Dubai, UAE, during which time he edited the Middle East’s first English language insurance magazine and established the region’s first insurance and reinsurance awards.

Connect with David on Twitter @DavidJBanks