Risk managers involved with analyzing a corporation’s enterprise risk have a myriad of perils to be concerned about. A risk sometimes overlooked from an insurance perspective is brand value and expenses associated with the investment of brand marketing and advertising. An article in the New York Times, Insuring Endorsements Against Athletes’ Scandals, noted that just seven companies that had endorsements from Tiger Woods lost over $12 billion in market value during the month following the announcement of Woods’ troubles.

The New York Times article indicated that many companies hedge against the risk of such failed celebrity endorsements by purchasing insurance:

"Many companies take out death and disability insurance to cover themselves in the event that an athlete or celebrity endorser dies or is injured while under contract. In a new wrinkle, more companies are trying to insure against the potential loss of sales when an athlete product endorser is involved in a scandal.

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Dan Trueman, who runs the enterprise risk department at R J Kiln & Company…said his firm had seen an eightfold increase in inquiries into this type of insurance between September and December, the bulk from pharmaceutical and financial service companies. “It’s more than just the flavor of the week.”…

Calculating the amount to insure against is not easy. Insurers said they based their assumptions on how much revenue grew after an athlete or celebrity became a company endorser. In some cases, the cause and effect is direct — for example, in the case of signature Tiger Woods golf shirts sold by Nike. But companies that employ athletes or celebrities for more generic brand building are now also looking for financial protection.

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Insurance policies can cover money paid to athletes as well as the cost of producing and booking television commercials, print advertisements and other promotions. Some insurers will also cover the costs of new commercials with replacement athletes.

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According to Trueman, the underwriter at Kiln: “Tiger Woods has made people think about their reputations. These days, people don’t worry about the office burning down, but about their intellectual property being damaged.”

In Woods’ Woes Help Market New Coverage, the National Underwriter noted that Woods’ scandal has created a significant demand for a new "reputational risk" insurance. There are a number of valuation issues with this type of coverage which are difficult from an underwriting and claim viewpoint:

"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."

Dewitt Stern offers a "reputational risk" coverage and noted in a press release,‘Reputation Risk Insurance’ Introduced by 110-Year-Old Risk Advisory Leader, Dewitt Stern, that it will even cover lost sales. I anticipate there will be huge differences of opinion on that claims valuation issue because most of my entrepreneurial business clients are optimistic about endeavors and claims managers are generally more pessimistic than a snowball in a heated oven:

"The Tiger Woods scandal shows how quickly reputations can become tarnished in today’s fast-paced media environment," said LeConte Moore… "All the planning in the world cannot protect a brand manager against the unforeseen. Reputation Risk Insurance will provide those forward-looking brand managers and advertisers with a…way to protect their investments."

"Reputation is arguably a company’s single greatest asset, and in the era of instant information, it is more vulnerable than ever," said Scott Brady…

DeWitt Stern’s Reputation Risk Insurance will compensate policy holders for:
• Lost sales;
• Crisis management fees;
• Lost advertising campaign expenses, and
• Pre-committed and incurred endorsement fees."

We can learn lessons from life’s tragedies that happen to others. As indicated in Tiger Woods Affair Highlights the Impact of Separation or Divorce on Insurance, coverage can be affected by those events. Fortunately, as indicated here, the insurance product can often help hedge against the financial loss from them as well. For those involved with events that may be dependent on celebrity appearance, I suggest you also read Event Cancellation Insurance and the Michael Jackson Tour.