Suppose you have a client who owns a small chain of elegant cafes, known for using the best ingredients, organic foods, and artisan breads. The company’s been thriving and its name is now known throughout the state, with your client discussing plans to further expand. Then the unthinkable happens: a wave of patrons falls ill from severe food poisoning. Her cafes are closed till the source of contamination can be identified. The problem is found–a batch of organic baby spinach, somehow contaminated at the source–and her cafes had nothing to do with it. But when they reopen, the customers stay away in droves and business drops dramatically. Can she afford the loss of business? If not, is she insured for that?
She soon could be, according to LeComte Moore, managing director at DeWitt Stern, a 110-year-old risk management and insurance brokerage firm in New York. While the firm specializes in insurance products for the entertainment, arts, and advertising industries, it has been hard at work on a new product since months before Tiger Woods exchanged fame for notoriety in late 2009 and his sponsors began to flee. Reputation risk insurance as currently under construction by DeWitt Stern has not existed before, says Moore, and actually would not have applied to the sponsors in Tiger’s case–there was already a type of coverage available to protect them, Moore adds, although none of the companies involved had purchased such policies. That coverage, says Moore, is for situations in which a “spokesperson dies, is injured, or defames you, your product, or himself.”
DeWitt Stern’s new insurance instead is a form of event cancellation insurance “but is triggered by something that negatively affects your brand, and not by a physical loss or damage,” explains Moore. “That is, a situation that negatively impacts your brand due to an incident outside of your control that causes you interruption of your business cycle or revenue.” In the case of our hypothetical cafe owner above, the fact that her business sank into oblivion when queasy customers feared further food poisoning, even though she and her staff were innocent of causing any of the problems, would be the trigger.