Product Development: Brand Insurance
The Product on offer: “Brand Insurance”
Defining my product:
The name of the product might be misleading but Brand Insurance as to what I’m intending to convey here is the protection of the company’s potential business loss arising out of loss in the revenue due to the damage caused to the company’s brand by external forces and it is not to protect the Brand Logo of the brand or the name of the brand. Also the Product does not cover the reduction in the Brand equity of the brand as ascertained by the brand valuation agencies or the company.
Case Example:
If we consider the recent case of Pepsi pesticide issue, One of India's leading voluntary agencies, the Center for Science and Environment (CSE) came out with a research report that soft drinks manufactured in India, including those carrying the Pepsi and Coca-Cola brand names, contain unacceptably high levels of pesticide residues. This lead to the banning of Pepsi’s products in some states and due to lack of proper awareness about the truth of the information consumers too started avoiding PepsiCo’s products. Due to which Pepsi incurred a loss of 10% in the growth and expected revenues.
The Need for Brand Insurance:
Branding is a very powerful component in business. With more than 2000 national brands available in India the need for brand insurance is definitely there. The consumers decide if they will buy a product or use a service based on how they view the brand. The brand itself tells us or let us imagine how good or bad the product is even if we never tasted it before! All that brand promotion and advertising really do tell us how great a brand can be (like Nike). The qualities of the product or services are ensured through the customers minds from the brand image. Hence when there is a damage caused to the brand there is a huge impact on the consumers who use it regularly, in our above case of PepsiCo it would have definitely impacted the minds of the consumer on how they perceive the brand. So a company like PepsiCo would definitely go in for brand insurance in order to protect their business interests. The scope of business for the insurer is high due to the high premium which can be charged to these companies which they would willingly accept and also the probability of claims is less than 1 so there is definitely a reason for the insurance companies to go in for brand insurance.
Limitations of the existing products:
Business Interruption Insurance—
This type of insurance covers only business interruption in case of fire or other perils covered by the policy and the loss in the revenue or profit arising out of it, so in the case of PepsiCo the loss of brand value and the Profit/Revenue loss arising out of it is not covered therefore the product in its current form cannot be applicable.
Liability Insurance—
This type of insurance covers only those which arise under the Law of Tort or Statutory law or law of contract. If we look at the Law of Tort it is for those cases where the company or individual incurs a loss due to a civil wrong, say a legal suit is filed against the company and the court sentences him to pay a $1 million in fines/penalties this can be covered under the Liability insurance or if there is a defamation case against the company the contingent loss arising out of it could be covered in this policy so here too it’s not possible to insure the loss in revenue due to damage to brand.
IPR Insurance—
Intellectual Property Insurance coverage protects companies only for copyright, trademark or patent infringement claims arising out of the company's operation. It pays the defense costs and any judgment up to the policy limits; it is difficult to include the kind of coverage I am referring to here, infringement with the brand name and such things could be covered but not the business loss arising out of it.
Conceptual Framework:
The major problem here is to identify the areas to cover the business loss that the company is expected to incur in case of the brand being damaged. The loss should be quantifiable i.e. financial in nature. The person insuring the brand should have strong insurable interest, fundamental risks that is those which affect the entire society would not be covered for example, if the country on the whole gets blacklisted for exporting certain products which would definitely affect the brand of the product would not be covered, case example is the Chinese toy industry. Most importantly the insurance is covered only for the Indian subsidiary of the company in case of an MNC i.e. the coverage would be limited to the Indian books. The company taking the insurance should have published book of accounts complete with balance sheet and profit and loss statement for the past 5 years. The methodology involved here is that loss payable by the insurance company would be limited to the projected revenue of the specific brand for period of loss, which cannot exceed more than 12 months. The average revenue statement (audited) from the brand from the brand for the past 5 years of its existence is to be submitted by the company to the insurance company which is subject to verification by the provider especially in case of unaudited statements. Since the probability of claims arising is very low the insurance providers shall settle the claims on a case by case approval especially since they involve huge amounts. The premium for the product shall be fixed taken into consideration the brand equity of the brand, the profitability of the brand, and the annual income generated by the brand in India. The insurance shall be sold only by select branches of the insurance company which have sufficient resources to value the brand and evaluate the premium and others. A major clause would be that the insurable brand should be national i.e. with a presence in at least 5 states, only then would the brand be eligible for the insurance.
Risk Identification:
The Risk here is the potential loss of revenue from the brand, which would be calculated based on the afore mentioned. The major causes for the damage to brand could be due to false speculation, faulty goods, defective batches of products, original idea, copycats in the grey market, environmental effects etc.
Can these factors be eliminated?
Some of these factors can be eliminated by being more cautious in the production process of the product with better quality control and with timely action with respect to defaults. Even after the damage to the brand one could reconstruct the brand loyalty by communicating to the consumers effectively about the facts of the product and advertising in the right way, but still there could be some factors which may not be possible to be eliminated entirely.
Probability:
The probability of claims arising is considerably less than 1 considering our approximate figure of 2000 national brands the major damages caused to among these is 3 approximately so the probability of claim is 0.0015. Though this is just an approximation the value would still be below the required 1 after taking the exact number of brands and those which suffered business loss due to the damage to the brand value.
Commercial Viability:
The scope of business is huge and with every company trying to establish a national presence with a strong brand there is risk always associated with promoting your product as a brand and hence the opportunity for the insurance companies to get in. With the probability of claims arising is less than 1 there is every possibility that the product would be a success in the market. Especially in a developing country like India where there is uncertainty in every business venture one takes (not that there is no uncertainty in developed countries, just that it is higher in countries like India) the commercial viability of a product like this to secure the risks of the business would be necessary and successful.
Profitability:
Profitability form the insurance company’s point of view is high since as I mentioned earlier the probability of claims arising is very low compared to other insurance policies and since the premium that would be charged is considerably high the scope of insurer making profits is also high. The insurer needs to be careful on how he utilizes or invests the premium received through these in an effective manner.
Conclusion:
Brand insurance as I perceive is a new concept, for any product to pick up needs time, and hence our product here too would require time to gain acceptance in the public. Considering the scope of business that it could spin off there would be a definite interest in the companies who perceive risk to their brands from unexpected sources would opt of brand insurance so that they could concentrate more on their business without worry about the business losses they might incur in case of damage to their brand. Hence I would like to conclude that there is scope for a product like Brand insurance in the market.
PS: A project done in LIBA
