➤ Disgrace insurance provides coverage to companies with celebrity endorsers whose actions may mar their own reputations, as well as the companies that hire them.

➤ The #MeToo movement has ratcheted up demand for reputation-related insurance.

➤ In the past, it has been difficult for policyholders of this type of insurance to obtain higher limits and coverage for prior acts.

With the issue of risk and scandalous behavior coming to the fore, Spotted CEO Janet Comenos realized there was a real need for an insurance product that offered coverage to companies hiring celebrities who could have engaged in inappropriate activities that may hurt their brands. Using the power of data analytics, she partnered with insurance companies and revamped a legacy product to increase coverage limits and cover previous acts.

S&P Global Market Intelligence spoke with Comenos about how the niche insurance product has been received. The following is an edited transcript of that conversation.

S&P Global Market Intelligence: How did you get the idea to offer disgrace insurance? And what has the demand been for your SpottedRisk product since it launched?

Janet Comenos: The demand has been very strong, and it's been met with a very positive reception.

I uncovered this opportunity a couple of years ago when I noticed that brands that we were selling our analytics to, to help inform their endorsement deals, started to become worried about the risk exposure they were taking on in the wake of the #MeToo movement as they were dedicating millions and millions of dollars to one celebrity or a small handful of celebrities. The topic of risk and scandalous behavior was coming up regularly, and I came across this old Lloyd's of London product called "disgrace insurance" that has existed for almost 40 years. Its original intent was to provide insurance coverage to brands in the case of a Tiger Woods-type scandal.

I started poking around and sent some emails out to underwriters in London who had written this coverage over the years, and the feedback was very consistent. The underwriters had no ability to assess the risks of famous people when they were underwriting these policies. Typically underwriting guidelines are very sophisticated, but not for this product. They were placing really low limits on the policies; they had to because they couldn’t properly assess the risk.

We hired an underwriting team and we built a really sophisticated set of underwriting guidelines that allow us to assign a risk score to an individual or a group of individuals … We were able to get eight insurance carriers to put up some pretty serious capacity for our product. We have guaranteed limits of $10 million with limits of up to $20 million upon request. We are heavily focused on the entertainment industry right now. We're bringing this to film and TV financiers, we're bringing this to banks who lend to athletes and entertainers, we're bringing it to studios and production companies and the reception has been very positive. I think people have been looking for this product due to how many scandals have disrupted production in Hollywood over the past couple of years.

Do you think demand has grown for it?

Absolutely. The #MeToo movement was a catalyst for it. If the #MeToo movement had not existed, I'm not sure there would have been as much interest in this coverage. Interestingly, between 2017 and 2018, we saw a 29% increase in reported disgrace events in one year. The numbers continued to climb in 2019, because now instead of people being outed left and right for sexual assault, there's heightened sensitivity in the U.S. for other types of bad behavior. We've seen a big spike in the last year in terms of heightened sensitivity to racism and homophobia.

Our product is really built for the 21st century because details come up every day from behavior in years prior. That was another big shortcoming of the legacy disgrace product in the market that we fixed.

How do you determine the specifics of the policy?

The way that we pay out on the policy, because disgrace is kind of an esoteric, difficult to quantify risk, is not like automotive damage or a homeowners policy where you can very clearly quantify the damage. With disgrace it's a bit nebulous because there's some subjectivity in terms of the behavior.

As we were building the product out we met with big studios like Disney and Fox, and we asked them what they would need in a disgrace product. They said they needed bigger limits, coverage for prior acts, a definition for disgrace and a clear trigger for claims.

There's a trend in the insurance space toward creating parametrics-based triggers for claims. We have seven tiers of public outcry; the tier 1 level pays out 10% of the limit, while tier 7 pays out 100%.

Do you expect that the demand for disgrace insurance will continue to grow in the future?

I do. First of all, I think it's highly unlikely that the public is suddenly going to revert back to pre-#MeToo complacency. We see a record high number of reported sexual assault and harassment cases, and the number of reported events has not declined. Furthermore, public sensitivity to all different types of bad behavior is rising all the time. The other thing to keep in mind is that when you're dealing with famous people who are grappling with sudden shifts in popularity or wealth, they have all sorts of emotional issues and much higher drug and alcohol usage rates than the average person. They’re just very risky individuals to be banking, in some cases, hundreds of millions of dollars on. I don't think that's going away.

Is anyone uninsurable?

There are some people I can clearly say are uninsurable, like Kevin Spacey and R. Kelly. Generally speaking, to be uninsurable you have to be currently embroiled in a disgrace event or you've had an event in the past ten years and you've not yet come back to your regular job.