Influencer marketing is a lucrative business. Top social media influencers can earn upwards of $25,000 per post in partnership with a brand or company. Still, social media influencers must think about reputational risks that can have a measurable effect on their revenue.
In this article, Milliman’s Madeline Johnson discusses why individuals who rely on their name for income may need some type of reputation risk or business interruption insurance. She also explains the factors insurance companies should consider if they design an individual reputation risk insurance product.
Here is an excerpt from the article:
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….
… 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.