What Is Reputation Insurance?

What is reputation insurance?

Reputation insurance is a catchall term for various protections found in business insurance policies. Sometimes reputation insurance serves as a stand-alone product. However, 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.

• Business owner’s liability insurance: Some of the most basic liability insurance policies include reputational risk coverage. The coverage in this business insurance type is often minimal, including events like libel or slander lawsuits and advertising injury. These events could occur because of accidental use of false or offensive information in marketing materials.
• Cyberthreat insurance: Cyberthreat insurance focuses specifically on network security threats to data on 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. Both of these activities could result in harm to the brand’s reputation.
• Crisis management insurance: Crisis management insurance covers the emergency use of public relations (PR) 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 proactively.
• 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.

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.” However, he added, “Every carrier is different.”

According to Loughlin, small business owners interested in augmenting their standard policy with one providing 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:

• 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 businesses. Buying insurance is essentially shifting the burden of risk from your company to an insurance company. Therefore, 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.”

Cost of reputation insurance

Reputation insurance costs depend on several factors, including your company’s size, its revenues and the industry you are in. 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. 

What’s the difference between reputation insurance and reputation risk insurance?

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. 

Don’t stake your reputation without reputation insurance

Your brand’s reputation is an important part of your business. It’s what demonstrates your commitment to quality and builds your connection with your customers. So, when your reputation takes a hit your bottom line does as well. 

That’s where reputation insurance comes in. If you’re concerned about what a publicity crisis could do to your business, it might be time to consider a reputation insurance policy.

Kimberlee Leonard contributed to this article. Source interviews were conducted for a previous version of this article.