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.

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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.

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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.
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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.

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Sponsored: Liberty Mutual Insurance

2015 General Liability Renewal Outlook

As the GL insurance cycle flattens, risk managers, brokers and insurers dig deeper to manage program costs.
By: | March 2, 2015 • 5 min read
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There was a time, not too long ago, when prices for general liability (GL) insurance would fluctuate significantly.

Prices would decrease as new markets offered additional capacity and wanted to gain a foothold by winning business with attractive rates. Conversely, prices could be driven higher by decreases in capacity — caused by either significant losses or departing markets.

This “insurance cycle” was driven mostly by market forces of supply and demand instead of the underlying cost of the risk. The result was unstable markets — challenging buyers, brokers and carriers.

However, as risk managers and their brokers work on 2015 renewals, they’ll undoubtedly recognize that prices are relatively stable. In fact, prices have been stable for the last several years in spite of many events and developments that might have caused fluctuations in the past.

Mark Moitoso discusses general liability pricing and the flattening of the insurance cycle.

Flattening the GL insurance cycle

Any discussion of today’s stable GL market has to start with data and analytics.

These powerful new capabilities offer deeper insight into trends and uncover new information about risks. As a result, buyers, brokers and insurers are increasingly mining data, monitoring trends and building in-house analytical staff.

“The increased focus on analytics is what’s kept pricing fairly stable in the casualty world,” said Mark Moitoso, executive vice president and general manager, National Accounts Casualty at Liberty Mutual Insurance.

With the increased use of analytics, all parties have a better understanding of trends and cost drivers. It’s made buyers, brokers and carriers much more sophisticated and helped pricing reflect actual risk and costs, rather than market cycle.

The stability of the GL market also reflects many new sources of capital that have entered the market over the past few years. In fact, today, there are roughly three times as many insurers competing for a GL risk than three years ago.

Unlike past fluctuations in capacity, this appears to be a fundamental shift in the competitive landscape.

SponsoredContent_LM“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them, through risk control, claims management and a strategic risk management program.”
— David Perez, executive vice president and general manager, Commercial Insurance Specialty, Liberty Mutual

Dynamic risks lurking

The proliferation of new insurance companies has not been matched by an influx of new underwriting talent.

The result is the potential dilution of existing talent, creating an opportunity for insurers and brokers with talent and expertise to add even greater value to buyers by helping them understand the new and continuing risks impacting GL.

And today’s business environment presents many of these risks:

  • Mass torts and class-action lawsuits: Understanding complex cases, exhausting subrogation opportunities, and wrangling with multiple plaintiffs to settle a case requires significant expertise and skill.
  • Medical cost inflation: A 2014 PricewaterhouseCoopers report predicts a medical cost inflation rate of 6.8 percent. That’s had an immediate impact in increasing loss costs per commercial auto claim and it will eventually extend to longer-tail casualty businesses like GL.
  • Legal costs: Hourly rates as well as award and settlement costs are all increasing.
  • Industry and geographic factors: A few examples include the energy sector struggling with growing auto losses and construction companies working in New York state contending with the antiquated New York Labor Law

David Perez outlines the risks general liability buyers and brokers currently face.

Managing GL costs in a flat market

While the flattening of the GL insurance cycle removes a key source of expense volatility for risk managers, emerging risks present many challenges.

With the stable market creating general price parity among insurers, it’s more important than ever to select underwriting partners based on their expertise, experience and claims handling record – in short, their ability to help better manage the total cost of GL.

And the key word is indeed “partners.”

“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them — through risk control, claims management and a strategic risk management program,” said David Perez, executive vice president and general manager, Commercial Insurance Specialty at Liberty Mutual.

While analytics and data are key drivers to the underwriting process, the complete picture of a company’s risk profile is never fully painted by numbers alone. This perspective is not universally understood and is a key differentiator between an experienced underwriter and a simple analyst.

“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks — things that aren’t necessarily captured in the analytical environment,” said Moitoso.

Mark Moitoso suggests looking at GL spend like one would look at total cost of risk.

Several other factors are critical in choosing an insurance partner that can help manage the total cost of your GL program:

Clear, concise contracts: The policy contract language often determines the outcome of a GL case. Investing time up-front to strategically address risk transfer through contractual language can control GL claim costs.

“A lot of the efficacy we find in claims is driven by the clear intent that’s delivered by the policy,” said Perez.

Legal cost management: Two other key drivers of GL claim outcomes are settlement and trial. The best GL programs include sophisticated legal management approaches that aggressively contain legal costs while also maximizing success factors.

“Buyers and brokers must understand the value an insurer can provide in managing legal outcomes and spending,” noted Perez. “Explore if and how the insurer evaluates potential providers in light of the specific jurisdiction and injury; reviews legal bills; and offers data-driven tools that help negotiations by tracking the range of settlements for similar cases.”

David Perez on managing legal costs.

Specialized claims approach: Resolving claims quickly and fairly is best accomplished by knowledgeable professionals. Working with an insurer whose claims organization is comprised of professionals with deep expertise in specific industries or risk categories is vital.

SponsoredContent_LM“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks, things that aren’t necessarily captured in the analytical environment.”
— Mark Moitoso, executive vice president and general manager, National Accounts Casualty, Liberty Mutual

“When a claim comes in the door, we assess the situation and determine whether it can be handled as a general claim, or whether it’s a complex case,” said Moitoso. “If it’s a complex case, we make sure it goes to the right professional who understands the industry segment and territory. Having that depth and ability to access so many points of expertise and institutional knowledge is a big differentiator for us.”

While the GL insurance market cycle appears to be flattening, basic risk management continues to be essential in managing total GL costs. Close partnership between buyer, broker and insurer is critical to identifying all the GL risks faced by a company and developing a strategic risk management program to effectively mitigate and manage them.

Additional insights



For more information about how Liberty Mutual can help you manage the total cost of your GL program, visit their website or contact your broker.

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




Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty, workers compensation and group benefits.
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