Supplemental health industry for small companies: Challenges and opportunities
Small companies in the supplemental health products market need to understand the unique challenges these products present in order to compete effectively.
A tweet or an online post is an expression of your thoughts, transmitted to cyberspace in an instant. But for a growing percentage of individuals, social media can be a business, one in which YouTube stars or Instagram celebrities generate a steady income stream and a host of sponsorships through their own online brand. It is a business model not without risk: just look at Logan Paul’s unfortunate YouTube post. This social medial influencer has over 5 billion views across multiple video platforms.1 He found out that violating the company’s community policies may have cost him millions due to an unfiltered video upload to his highly followed account.
Influencers may be celebrities but they also can be fitness gurus, beauty stylists, foodies, travel experts, or other interesting personalities that draw viewers. Today, top social media influencers can make upwards of $25,000 per post. An Instagram user with 100,000 followers may earn $5,000 for a post made in partnership with a brand or company. On YouTube, some of the most-followed personalities, those with millions of followers, can command $300,000 for a video partnership. And these multi-million follower influencers can receive $100,000 for an Instagram post.2 One of the most successful social influencers is actor Andrew Bachelor, known as King Bach, who has more than 37 million followers.3 Ariana Grande, a singer and celebrity influencer, may command $500,000 per Instagram post. This form of influencer- advertising is lucrative for companies as well, as it has generated billions4 of dollars of revenues for companies using influencers to promote their products and services. However, social media marketing has some risk.
Many companies have implemented social media policies to provide specific guidance to their employees regarding online activities both inside and outside of work. For example, The New York Times recently issued Social Media Guidelines for the Newsroom5 that provided specific instructions to avoid expressing partisan opinions of issues on which the Times is reporting. These guidelines also extend to employees’ personal social media accounts. A casual “like” of a particular topic, web page, or event might cause potentially partisan opinions to wreak havoc on the Times’s reputation. The policy requires employees to be transparent if a tweet or post was in error. They need to delete the post and consult the social media corrections policy for guidance.
A company’s reputation has a measurable impact on its revenue, and recently, has come to be considered an insurable “asset.” However, reputation risk is not unique to large companies. Individuals who rely on their name for income may have a need for some type of reputation risk or business interruption insurance. But could such a product exist, and if so, what would it look like?
Reputation is defined as “overall quality or character as seen or judged by people in general” or “a place in public esteem or regard: good name.”6 Starting with the premise that our “good name” translates to our own individual “brand,” protecting one’s individual reputation correlates to protecting one’s personal brand - and the corresponding income stream and overall marketability contained therein. Just as Bruce Springsteen insured his voice or Heidi Klum her legs, for many professionals and celebrities their income is often dependent on the individual reputation they have created. As social media usage increases, the potential for a negatively received public comment does too. A negatively received post has potential implications not only for the social media star but also potentially for the partner company or brand. These companies hire influencers and pay them to endorse their products or services on various social media venues. Reputation risk insurance could provide a financial safety net by providing coverage if a significant negative media event occurred that quantifiably affected an influencer’s future revenue stream.
A reputation loss for a company is characterized by an incident that ultimately damages the reputation of a company’s product, service, or brand image. Recent examples include Facebook’s data scandal involving the mishandling of information with Cambridge Analytica. According to The New York Times, this privacy breach involved as many as 87 million Facebook profiles. As a result, the #DeleteFacebook movement is “trending now.” The collection and use of personal data establishes a new set of corporate and individual influencer risks. And we cannot forget the massive data breaches at Equifax – which has already resulted in a 50-state class action lawsuit7, Yahoo’s data breach in 2013 and 2014 that impacted over 3 billion user accounts8, and many others. Besides the direct financial losses, publicity surrounding the privacy issues and cyberattacks eroded consumer trust, and sales and profitability suffered as a result. To protect themselves, companies can purchase cyber risk insurance policies and, in some cases, can add a “crisis management endorsement” to cover the reputational aspect of the event.
However, one would not expect this type of coverage to cover the reputational portion of the loss if the underlying event was a result of an employee’s negligence.9 A standalone reputation insurance policy that covers reputation risk would need to be restructured such that the policy itself defines the risk events. For example, the loss trigger might be a significant rise in negative media coverage.10 This might be measured in a drop in followers if the social media star received bad ratings for a recent video partnership. Various tools also exist that seek to measure social media sentiment; an increase in negative sentiment could be used to inform the loss trigger as well.11
There are a growing number of individuals turning social media into a business, for whom a reputation risk policy might be valuable. According to Vivien Garnes, cofounder & CEO of Upfluence.com, there may be upwards of 1.1 million of influencers sharing and posting on various social media venues such as Facebook, Instagram, Twitter, YouTube, and others. The impact of these influencers is astonishing. According to influencer marketing agency Mediakix, influencer marketing is projected to be a $5 to $10 billion market by 2020. Mediakix estimates that advertisers spend over $1 billion per year with influencers on Instagram.12
In exploring a structure for a reputation risk insurance product for individuals, an insurance company would need to consider the ramifications of insuring an influencer’s potentially poor choice in posting. In most insurance policies, the insurer is offering protection from an outside risk exposure, not an intentional communication on social media. From an insurer’s perspective, issues to consider include defining the specific social media coverage event excluding instances where protocols were not used and, most importantly, the ability to quantify the premium and loss coverage accurately. The insurer would need a methodology to estimate the predicted occurrence of the negative social media event to determine the risk of loss to the insurer. We would expect the actuarial value of the covered losses to be a key component to the policy. Insurance companies would need to structure the policy using a set of assumptions related to how much has been damaged or lost and for how long. Evaluating past social media influencer income streams versus changes after varying posts and videos to form a predictive view may be helpful in understanding risk exposure. A prudent approach to determining insurance terms and pricing is to perform an actuarial study to evaluate the frequency and severity data from similar past events. This can be accomplished by evaluating relationships between social media influencers that have partnerships with certain brands or products, costs of the ultimate drop in followers and sales, and any existing mitigation activities.
Other considerations for the insurance company include moral hazard (enabling the escape hatch for the insured), uncertainty in claims limitations and policy wording, reinsurance ability, evidence of loss, and others.13 An insurer may be concerned that an individual purposely posts something online in order to claim the insurance claim payout. Insurers would need strong mitigation protocols as well as policy exclusions to ensure fraudulent claims are not paid. For example, an insurer’s mitigation and prevention requirements could include routine social media training, limits on after-hours postings, and automatic content reviews by a second individual or computer program prior to hitting “post.”
Similar to workers’ compensation14 insurance, measurement of loss could include the individual’s revenue and overall compensation. Just like a situation where the employee is in a serious accident at work, if the reputation is damaged beyond repair, a lifetime estimate of compensation would need to be determined. Instead of paying medical benefits for the accident, an insurer could pay lost income while the reputation is being “repaired” over a pre-defined period of time. Business interruption insurance also provides a structure that pays for the actual loss of business income sustained due to suspension of revenue while in this example, the potential reputation hit is being rectified. However, insurance companies would be understandably hesitant to underwrite this risk without some form of mandatory risk mitigation.
An individual-focused reputational risk policy may include specific language and protocols regarding loss mitigation. For social media celebrities, mitigation could include hiring a publicist or public relations expert who can consult prior to responses to public callouts of bad behavior. Other forms of risk mitigation may include counseling, specific limitations on social media use without prior approval via a public relations firm, and policy exclusions. An insurer, as well as an employer, could explicitly state that posts that violate corporate guidelines, such as depicting racist, prejudice, and anti-social comments, are grounds for dismissal or ultimately exclusion from reputational risk coverage. This explicit policy would help ease concerns regarding moral hazard.
Of course, eliminating the need for the mitigation is always best. Thinking through your tweet, text, video, or post prior to sending it has its advantages. Time-delay apps are available that allow an individual to delay the transmission of a text, which may then provide much needed time to re-evaluate one’s tweet or post.
For individuals whose income is generated from social media, one method of managing the risks is to use a monitoring service. There are many services that offer social media monitoring for companies as well as individuals. These services provide insight to companies regarding postings from customers and potential customers using keywords and sentiment scoring. They provide media alerts and other tools to gather insight and understand trends. These services promise social media monitoring to keep a strong, positive image out in the social media environment.
This type of service can be used to monitor postings about the individual as well as postings by the individual. The service searches the internet scouring for keywords that may be damaging to the individual’s reputation. This allows the insurer to perform due diligence on social media accounts prior to providing coverage and likely would include defining acceptable posting protocols and the review process.
From an insurer’s perspective, structuring a reputation risk policy for an individual involves customization of the trigger terms, coverage amounts, required mitigation services, and clearly defining exclusions in coverage among other things.
If structured properly, this type of insurance would be similar to the mortgage insurance industry’s second underwrite of mortgage loan files for investors. That second review allows additional protection from errors or incorrect guidelines. For social media influencers, it can provide protection for both employer and employee. It allows the ability to provide some brand protection for the ultimate partner company and revenue protection for the influencer.
Because corporate reputation risk policies have been used in the marketplace, it may be an opportunity for insurers to evaluate and expand this form of coverage to social media influencers. The recent increases in reputational breaches clearly show a need for these policies if appropriately priced. For social media personalities, implementing the right insurance policy with appropriate coverage as well as a mitigation component should help clean up a mess already created. A crisis management firm with a swift SWAT-team approach to manage the events online to mitigate any damages to the individual and the partner’s reputation will assist with tempering the issue.
Bottom line—like any other business decision—look before you tweet.