New Insurance Protects Brands When Celebs Go Bad

Today, many, maybe most, celebrities endorse products. And that means brands face a challenge when their endorser suddenly shows up in the news for the wrong reasons: a drug scandal, domestic violence charge, hate speech, even shoplifting. The next move may be to back away: terminate the contract, cancel the advertising and pull the physical product if its celebrity-branded.

But that can be a costly and unanticipated expense. What to do? Enter an apparently new form of insurance, Celebrity Product RecallResponse. Yes, when you’re an insurance company, every risk is a potential business opportunity.

“We’ve been working on this for a while,” said Jeremy Johnson, president of the Boston-based Lexington Insurance Co. “This was the outcome of a think tank of employees.”

Despite that think tank, it’s not quite as exotic as insuring Betty Grable’s legs, a singer’s voice or a food critic’s taste buds, all of which has reportedly been done by the folks at Lloyd’s of London.

Instead, it’s an outgrowth of other policies that Lexington, a unit of AIG, has written for years, covering recalls for more mundane reasons such as product defects. They already know a lot about the cost of cancelling ads and recalling and potentially destroying product – the latter can vary depending on the product’s weight, size, shelf-life and other factors – but what about the risk side of the equation?

Here Johnson was cautious about disclosing too many of his company’s underwriting secrets.

“We might use background checking,” he offered, in a tone that left no doubt that that they do. And, he said, “we insure a lot of celebrities already.”

Would they do Google searches, read the trades, hire a private investigator?

“There could be elements of that” was all the Oxford-educated executive would say.

Can marketers sleep easy? Maybe. Not everything is covered though, with a potentially big exclusion being damage to a company brand’s public image. Also not eligible: movies and TV shows. The insurance is targeted at manufacturers of physical products with celebrity endorsement, not at projects that celebrities appear in. Sorry, Hollywood.

Coverages range up to $1 million in aggregate if purchased as an endorsement – that is, a supplement to an existing policy – or $5 million for a standalone policy. Premiums are a minimum of $15,000 for $1 million coverage or $50,000 for $5 million, and depend on coinsurance, self-insured retention (deductible), the nature of the product and, of course, “what experience has the celebrity had in behaving badly.”

That last will vary all over the map, but with a steady supply of celebrities with all the wrong experience, Johnson says his new offering is getting an lot of interest.