Risks of Celebrity Sponsors
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.
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 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.
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.”
Unseen Costs of Measles Outbreak
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.
Healthcare: The Hardest Job in Risk Management
Radically changing cost and reimbursement models.
Rapidly evolving service delivery approaches.
It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.
After all, this is more than just a business.
The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.
“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.
But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.
“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.
Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.
The Foundation: Financial Strength
Berkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.
For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.
But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.
For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.
“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.
Keeping Things Simple
Healthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.
Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.
“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.
Claims: More Than an After Thought
Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.
In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.
And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.
“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”
Responding To Ebola: Creativity + Flexibility
The recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.
Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.
BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.
These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.
At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.
Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.
“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.
It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.
To learn more about BHSI Healthcare, please visit www.bhspecialty.com.
Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact email@example.com.
The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.