Reputation Risks

Risks of Celebrity Sponsors

Companies should review 'what if' scenarios before attaching their products or services to a celebrity sponsor.
By: | February 11, 2015 • 3 min read
Topics: Reputation
Sponsorship risks

Companies are using actors, prominent sports figures and other celebrities to endorse their products more than ever before.

However, while they may generate lots of publicity around a product or service, not all of it is good publicity.

You only have to open up a copy of the newspaper to read about  scandals engulfing stars such as Bill Cosby, Brian Williams or Tom Brady with the New England Patriots’ ‘deflate-gate’ saga.

Advertisement




Sponsors have reacted by withdrawing their support, most notably in the NFL, where domestic violence allegations hanging over the sport prompted Procter and Gamble to pull the plug on a deal to supply players with pink mouthguards during Breast Cancer Awareness Month and cancel all on-field marketing.

The risks for any sponsor associated with this type of negative publicity are infinite, said experts, often resulting in the cancellation of lucrative advertising and marketing contracts, ultimately costing the company millions of dollars in lost revenue.

Worse still, the sponsor may be forced to pull its product from the market altogether, with the end result that millions of dollars are wiped off its share value.

The main risk of hiring a celebrity to endorse a product is the unexpected or disgraceful behavior of that individual, or unforeseen events such as death. — Lori Shaw, executive director, entertainment practice, Aon Risk Solutions

Lori Shaw, executive director of Aon Risk Solutions’ entertainment practice, said the main risk of hiring a celebrity to endorse a product is the unexpected or disgraceful behavior of that individual, or unforeseen events such as death.

“The first step is to analyze the potential risks, discuss ‘what if’ scenarios; outline the financial consequences; and to be aware of the risks that can be avoided, those that can be transferred contractually to the celebrity or talent, those that can be transferred to insurance and the risks that must be retained,” she said.

Shaw said that companies need to take a holistic approach to their branding and marketing activities in order to assess the potential impact of any adverse publicity on their balance sheet.

Nir Kossovsky, CEO, Steel City Re

Nir Kossovsky, CEO, Steel City Re

Nir Kossovsky, CEO of Steel City Re, a corporate reputation measurement and risk management specialist, said another major problem of negative publicity is the damage to a company’s reputation.

“The primary risk is that an adverse behavior at an event or by a celebrity will be viewed by stakeholders as a reflection of that company’s culture, values or operational ineptitude,” he said.

“In this situation where the stakeholder holds the company culpable for any such action, often they will respond by altering their future expectations and exercising their financial clout, usually to the company’s detriment.”

Kossovsky said that, rather than calculate the potential risk, sponsors need to first determine the value gained from the sponsorship deal, and the costs of acquiring that value.

Then they must assess the costs of communicating to stakeholders the steps it took to mitigate against any adverse events and publicity that may occur, he said.

“There are two instances when a company should walk away from a deal,” he said.

“The first is if the costs of a parallel communication strategy coupled with the direct costs of sponsorship outweigh the value of the expected gain.

“The second is if, on objective reflection, there is a compelling case that the average stakeholder will hold management culpable for an adverse event no matter what the management says to the contrary.”

To mitigate against these risks, corporations are increasingly turning to specialized insurance plans and writing clauses into their contracts allowing them to cancel a deal if the celebrity is considered to have acted in an inappropriate manner that may damage the company’s brand.

Recently, AIG launched a new policy protecting sponsors that hire celebrities to endorse their product.

Advertisement




Celebrity Product RecallResponse is triggered by any “actual or alleged criminal act or distasteful conduct” from the celebrity that has a significantly adverse impact on a company’s product.

It covers certain costs incurred by companies to remove or recall those products bearing the celebrity’s name and image, as well as the costs of removing advertising.

“In this age of social media and instant news,” said Jeremy Johnson, president and CEO of Lexington Insurance Co., which provides the policy, “reports of indiscretions by celebrities or high profile athletes can spread worldwide instantly, with swift, adverse implications for products or brands associated with the individual.”

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at riskletters@lrp.com.
Share this article:

Risk Insider: Hala Helm

Unseen Costs of Measles Outbreak

By: | February 11, 2015 • 2 min read
Hala Helm is Chief Risk Officer for the Palo Alto Foundation Medical Group where she is responsible for the development and maintenance of the overall risk management program. She holds a JD, MBA, and numerous professional health care and risk management certifications. She can be reached at helmh@sutterhealth.org.

By now, we have all heard about the measles outbreak in California. We have heard both sides of the vaccination “controversy,” even though all of the evidenced-based research findings are uncontroversial.

What you probably haven’t heard much about is the immense time, effort and expense expended by health care providers and the public health department to respond to a known or suspected case of measles.

When a person begins to experience the signs and symptoms of measles, it is likely that they will seek medical care.

If the medical staff is aware that the patient may have measles they can take precautions like masking the patient and physically isolating them from others to prevent the spread of infection.

In reality, however, the health care providers might not suspect a patient is infected until a medical professional has performed a physical examination and taken their history.

A known or suspected measles exposure triggers a cascade of response activities.

Facility staff must identify the infected patient (the index case), interview the patient to determine where he or she has been, who they might have come in contact with, and whether or not they were masked, and at what point.

Any person who has shared air space with an un-masked measles patient is considered at risk of exposure.

The response costs to a potential measles exposure have been calculated at as much as $100,000 per event in lost productivity and remediation expense.

While waiting one to two days — or up to a week — to get results from measles serology and PCR analysis, facility or public health department staff compile a list of any patients who likely shared air space with the index case.

These are primarily patients who had appointments proximal to the time and location of the index case and for one hour afterwards, who may have shared a waiting room area.

Obviously, this is an incomplete list, as it cannot possibly include contact with individuals in public places like elevators, restrooms, etc.

If measles is confirmed, every patient who is at risk of exposure must be contacted. The clinic or public health department may offer prophylactic MMR vaccinations to any exposed patient who can’t produce documentation of immunity, but that is only effective for 72 hours post-exposure.

If an exposed patient can’t produce proof of immunity and can’t obtain a prophylactic vaccination within the 72-hour time window, the public health department may order them quarantined for 21 days.

The response costs to a potential measles exposure have been calculated at as much as $100,000 per event in lost productivity and remediation expense.

It introduces cost and inefficiency into the health care system, a system that many already criticize as being costly and inefficient. Measles is on the rise, from under 200 documented cases in 2013 to nearly 650 in 2014, and 102 documented cases in January 2015 alone.

An exponential increase in measles will tax the system to the point where it will not be able to respond effectively, leaving our most vulnerable at risk.

And unfortunately, those most at risk from an exposure are exactly the types of people most likely to be found in hospital and clinic waiting rooms.

Read all of Hala Helm’s Risk Insider articles.

Share this article:

Sponsored: Lexington Insurance

What Is Insurance Innovation?

When it comes to E&S insurance, innovation is best defined as equal parts creativity and speed.
By: | March 2, 2015 • 4 min read

SponsoredContent_LexingtonTruly innovative insurance solutions are delivered in real time, as the needs of businesses change and the nature of risk evolves.

Lexington Insurance exemplifies this approach to innovation. Creative products driven by speed to market are at the core of the insurer’s culture, reputation and strategic direction, according to Matthew Power, executive vice president and head of strategic development at Lexington, an AIG Company and the leading U.S.-based surplus lines insurer.

“The excess and surplus lines sector is in a growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said. “Tomorrow’s winning companies are those being built upon true breakthrough innovation, with a strong focus on agility and speed to market.”

To boost its innovation potential, for example, Lexington has launched a new crowdsourcing strategy. The company’s “Innovation Boot Camps” bring people together from the U.S., Canada, Bermuda and London in a series of engagements focused on identifying potential waves of change and market needs on the coverage horizon.

“Employees work in teams to determine how insurance can play a vital role in increasing the success odds of new markets and customers,” Power said. “That means anticipating needs and quickly delivering programs to meet them.”

An example: Working in tandem with the AIG Science team – another collaboration focused on innovation – Lexington is looking to offer an advanced high-tech seating system in the truck cabs of some of its long-haul trucking customers. The goal is to reduce driver injury and fatigue-based accidents.

SponsoredContent_Lexington“Our professionals serving the healthcare market average more than twenty years of industry experience. That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment. At Lexington, our relentless focus on innovation enables us to take on the risk so our clients can take on the opportunities.”
— Matthew Power, Executive Vice President and Head of Regional Development, Lexington Insurance Company

Power explained that exciting growth areas such as robotics, nanotechnology and driverless cars, among others, require highly customized commercial insurance solutions that often can be delivered only by excess and surplus lines underwriters.

“Being non-admitted, our freedom of rate and form allows us to be nimble, and that’s very important to our clients,” he said. “We have an established track record of reacting quickly to trends and market needs.”

Lexington is a leading provider of personal lines coverage for the excess and surplus lines industry and, as Power explains, the company’s suite of product offerings has continued to evolve in the wake of changing customer needs. “Our personal lines team has developed a robust product offering that considers issues like sustainable building, energy efficiency, and cyber liability.”

Most recently the company launched Evacuation Response, a specialty coverage designed to reimburse Lexington personal lines customers for costs associated with government mandated evacuations. “These evacuation scenarios have becoming increasingly commonplace in the wake of recent extreme weather events, and this coverage protects insured families against the associated costs of transportation and temporary housing.

The company also has followed the emerging cap and trade legislation in California, which has created an active carbon trading market throughout the state. “Our new Carbon ODS product provides real property protection for sequestered ozone depleting substances, while our CarbonCover Design Confirm product insures those engineering firms actively verifying and valuing active trades.” Lexington has also begun to insure new Carbon Registries as they are established in markets across the country.

Lexington has also developed a number of new product offerings within the Healthcare space. The Affordable Care Act has brought an increased focus on the continuum of care and clinical patient safety. In response, Lexington has created special programs for a wide range of entities, as the fast-changing healthcare industry includes a range of specialized services, including home healthcare, imaging centers (X-ray, MRI, PET–CT scans), EMT/ambulances, medical laboratories, outpatient primary care/urgent care centers, ambulatory surgery centers and Medical rehabilitation facilities.

“The excess and surplus lines sector is in growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said.

Apart from its coverage flexibility, Lexington offers this segment monthly webcasts, bi-monthly conference calls and newsletters on key risk issues and educational topics. It also provides on-site risk consultation (for qualifying accounts), access to RiskTool, Lexington’s web-based healthcare risk management and patient safety resource, and a technical staff consisting of more than 60 members dedicated solely to healthcare-related claims.

“Our professionals serving the healthcare market average more than twenty years of industry experience,” Power said. “That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment.”

Power concluded, “At Lexington, our relentless focus on innovation enables us to take on the risk so our clients can take on the opportunities.”
SponsoredContent
BrandStudioLogo

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Lexington Insurance Company, an AIG Company, is the leading U.S.-based surplus lines insurer.
Share this article: