Insuring Against Bad Behaviour

business_ethics_highlights_2How can a company insure against bad behaviour on the part of a celebrity spokesperson. Well, you might think they would do that by being careful who they hire. And surely that’s something they do. But the story below is about “insuring” in the other sense — buying an insurance policy. Such a policy doesn’t prevent bad behaviour, but compensates the company in case bad behaviour happens. Some people will surely find this distasteful, since it essentially puts a dollar figure on immoral behaviour. But is it? >>>

LINK: ‘Disgrace insurance’ safeguards brands against celebrity ambassador mishaps (By Amanda Coletta for The Globe & Mail)

The celebrity athlete endorsement can do wonders for a brand.

But what if the superstar you’ve hired to front your campaign tests positive for a banned substance, such as Maria Sharapova, or is caught shacking up with a cocktail waitress, such as Tiger Woods, or is captured on video knocking out his fiancée and dragging her out of an elevator, such as Ray Rice?

It turns out there’s insurance for that.

Given recent infamous celebrity ignominies, a rapidly growing number of companies are purchasing “disgrace insurance” to protect themselves in case their brand ambassadors – swinging their tennis rackets, sporting their watches or smiling on their video-game covers – turn out to be more embarrassment than endorsement….

What do you think?

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One comment

  1. Remember to distinguish between the proximate cause that triggers the loss (the misbehaviour) and the indemnity offered by the insurance policy, which looks to be the communication and PR ‘clean-up costs’ for the company. So the interesting bit is more about how the rate is calculated (assessing the risk of misbehaviour) and less about the actual premium, which is a multiple of rate times clean up costs. The risk of misbehaviour is a bit like weighing up someone’s character, which we do all the time on a personal basis, and which firms do when negotiating the fees for the celebrity endorsement in the first place. And insurance literature is littered with references to the role of ‘moral hazard’ in assessing risk. The interesting development happening in insurance at the moment is the way in which insurers are using big data to explore moral hazard in greater granularity, and how such judgments are being made and applied.

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