Defining Moments: The Involuntary Branding Event

Stuff happens.

It's usually the not-very-nice stuff that gets the attention. And such occurrences seem to be happening with increasing frequency.

How organizations respond to such situations can define them for years to come in the eyes of customers, investors, regulators and employees.

Disasters define brands. Managements are often not prepared either for the event or for the subsequent reaction to their handling of it. Evidence abounds: BP, Toyota, Goldman Sachs, Tiger Woods. Wherever there is business, there are problems that have to be cleaned up - literally and figuratively.

One looming problem may well define the insurance brand for the next decade. Hurricane Sandy, which struck the New York area in late October is now reported to be the most expensive disaster on record, surpassing the level set by Hurricane Katrina in its destruction of New Orleans.

The enterprises most likely to be affected by the Sandy 'branding exercise' are insurance companies. As the following article explains, how they respond may well affect their financial, operational and regulatory prospects, let alone their reputations.

The insurance industry did not cover itself with glory in the post-Katrina rebuilding period. Policyholders found that a variety of legal definitions limited the amount they received to repair damages they believed were covered by the premiums they had been paying for years, or even decades. Welcome to the small print.

But that was New Orleans. A mid-sized southern city with a casual atmosphere. Beloved as a tourist destination, but not the center of the business or media universe.

Sandy hit New York. Where nothing is casual, even casual clothing. It is a business and media center of such competitive ferocity that even the phrase 'faster than a New York minute' fails to capture the energy, urgency and expertise of the doings transacted there. Savvy policyholders, the clever lawyers who represent them and the voracious media that covers them are not inclined to turn the other cheek. No for an answer? Thanks, that was an amusing opening gambit.

Companies in people businesses are occasionally given the opportunity to redefine their customer relationships. They can take a manageable short term hit and strengthen the bond. Or they can choose to play tough.

The insurance business is about to discover the breadth of the gap between its boiler plate promises and the fury of those who believe they are owed more. What happens in the next year could define the industry's ability to operate for decades. Brand? Reputation? How about license to operate. Or survival. JL

Jonathan Salem Baskin comments in Forbes:

An army of policyholders with very strong opinions will be unleashed next year, and what they say will drown out the collective brilliance of every company marketing insurance in America.

At risk of sounding mercenary, those companies should be approaching the recovery efforts from Hurricane Sandy as their most important branding event. The numbers are staggering: 360,000 claims already submitted in New York, with reports of 305,000 homes destroyed; entire New Jersey neighborhoods obliterated, and residents in both states still contending with gas and electricity shortages; dozens of deaths and thousands of injuries, and illnesses which may not become apparent for years.

New Jersey and New York could need north of $70 billion to restore infrastructure and services damaged by the storm. Loses to insured individuals could reach $22 billion, according to one disaster-modeling company. It’s estimated that insurance companies will pay at least $16 billion of it.

And there’s the rub. Thousands of policyholders will be left covering expenses their insurance companies declined. Add the agitation from Governors Cuomo and Christie to present themselves as consumer advocates. Top it off with the constant noise from anybody else who has an axe to grind, and 2013 isn’t shaping up as a banner year for insurance brands.

Want to guess how many times during the year somebody will consider buying insurance and get told by a friend “no, I heard so-and-so got ripped off by them,” or “you can’t trust any insurance company?”

No amount of creative paid media or schmarty-pants social campaigning will counter Sandy’s factual and impassioned memes.

It won’t be fair, of course. Insurance companies are honest. They comply with every regulation, and some of their employees do extraordinary things to help their clients. But that billions’ worth of payout shortfall will yield endless reminders of the ugly, scary truth at the heart of every relationship between insurer and insured:

Human beings are horrible at estimating risk.

If we were any good at it, Las Vegas would go out of business, and there’d be far fewer children conceived. The most damning stories next year won’t be the occasional clips about policyholders getting short-changed…but rather the far greater number of instances where they get exactly what they paid for.

Caveat emptor. What a horrible brand attribute.

I’ve long believed that brands are responsible not only for informing people, but for ensuring that they truly understand what they’re getting for what they’re paying. More understanding usually means happier, repeat customers. It pays to address thorny education points of a relationship on the front end, since they’ll likely pop up at the back end anyway.

Insurance brands are in the business of clearly defining and then pricing risk. Many of their policyholders are expert at avoiding, ignoring, or simply misunderstanding it. 2013 will be a case history in what happens when the former allows the latter to persist.

Every brand should take note.

What could the insurers do? Proactively come up with big, bold disaster programs that address current problems (like some special fund for uncovered damages, perhaps opened to other companies, or what about one-timer payout funds supported with novel pay-in schemes, effectively allowing policyholder to borrow what they can’t get in outright cash). Insurance brands should be working very publicly with local and state officials to not just listen to gripes (or chase complaints on Twitter), but to propose new years-long programs to help rebuild New York and New Jersey.

Then, they could use Sandy as the prompt to strengthen every policyholder relationship. Another weather disaster is all but a foregone conclusion, and they must know that certain at-risk clients are under-protected. Ditto for pretty much any policyholder, more than likely, so why not craft programs and campaigns intended to aggressively inform them? Make them into better customers now, before they become disappointed ones.

Think this already happens? Just remember that most insurance advertising promises low monthly costs and a purchase experience that is simple, quick, and often times automated. Understanding be damned.

If I were sitting in the boardroom of any biggie insurance brand right now, I’d say Sandy is the biggest marketing challenge on the horizon. How companies respond to their policyholders will say much more about the brands than anything the marketers choose to say about themselves.