Understanding Advertising Agency Insurance
Advertising agencies deal directly with the way their clients’ business reputation is to be perceived. This is achieved by using imagery, primarily a subliminal process. The power of suggestion works its way through the mind. Together, these creative elements produce the desired results in the growing world of image-conscious businesses.
The size of the global advertising industry was $590.3 billion in 2021 and is expected to grow to $792.7 billion by 2027. (Source) The US advertising market alone has hit around $320 billion in 2022 (Source). The risks and liabilities of the advertising industry have grown in tandem with its size.
However, creative work is highly subjective and prone to human error. Since ad firms are responsible for developing the communication between a business and its audience, they must be extremely meticulous with their approach.
An oversight would impact the customer’s perception of the client’s brand and tarnish the client’s image before their audience, ultimately affecting the ad agency’s reputation and revenue. Here, insurance steps in to protect the ad agency from professional errors and omissions that they can be exposed to in the normal course of operations.
Business and Professional Risks
If your efforts don’t elicit the desired results or your firm makes a mistake, your client could sue you. It could result in financial damages. It’s a fact that some clients are difficult to please, but negligent oversights and errors or omissions occur as well, despite the best intentions.
The reach of insurance for ad agencies is quite extensive. It can secure your business against many potential risks and unexpected events that would otherwise negatively affect an advertising firm’s business.
Let’s look at some examples that an advertising agency would get coverage for under the proper insurance.
Professional Exposures
If an advertising firm fails to include a word in the ad campaign and completely changes the ad campaign's meaning, it could cause a reduction in sales for the client company, which may sue the firm for its error.
Advertising campaigns could also backfire due to a slogan or logo being similar to that of another business. That business may then claim plagiarism or copyright infringement. The nature of marketing and advertising exposes an advertising firm to errors, omissions, or unintended results. Professional liability insurance protects an ad agency against negligence and professional misconduct claims, provides defense expenses, and pays for compensatory damage for covered claims.
Some of the professional exposures you may deal with are listed below:
- Scenario 1 - Your client’s competitor accuses your client of slander or libel based on an advertisement created by your firm.
- Scenario 2 - A client’s campaign doesn’t go as expected. They sue your firm for negligent failure to deliver as agreed or errors or omissions leading to financial loss.
- Scenario 3 - A word is omitted from an advertisement, and the client sues you for professional negligence.
- Scenario 4 - Your employee forgets to obtain the reproduction rights of a video clip; consequently, your client gets sued for copyright infringement.
- Scenario 5 - The use of a word in an advertisement created by your firm becomes the cause of a sudden drop in your client’s sales, and your firm is accused of errors or omissions.
- Errors or omissions
- Negligent failure: Something your firm promised but failed to deliver. This could be the desired result of a campaign as perceived by the client.
- Professional negligence: Inability to provide adequate information to the client to plot a proper course of action
- Slander and libel: A result of verbal or written falsehoods respectively by your business about another company
- Copyright infringement: Your firm may unknowingly create and distribute a copy of another company’s logo, slogan, or material. The firm could inadvertently find itself defending its actions in court.
- Defamation of character
- Causing emotional distress
Property Coverage
Advertising agencies that operate from within physical premises are exposed to incidents of a magnitude that could affect the normal functioning of the business. Coverage for your building, furniture, fixtures, equipment, and business income is included in a property policy. Threats to your owned property include fires, theft, windstorm, riot, vandalism, or other covered risks that result in loss or damage to your business-owned property.
Cyber Attacks
Ad agencies collect a lot of sensitive information about their employees and clients. During a cyberattack, the employees' addresses, bank details, and social security numbers could be exposed. Your client may have shared proprietary information with your firm about their business which is not to be disclosed to the general public.
A data breach or system hacking could compromise the personal and financial information of your client, your employees, and even your business. If properly endorsed, a policy tailored to reimburse for cyberattacks can respond to claims of financial losses suffered by your client, crisis management, identity theft, credit monitoring expenses, and system damage and lost income from business disruption for your business as well.
Vehicular Accidents
Suppose an ad agency’s employees use the company vehicle to commute between client meetings or fulfill other work commitments. In that case, the employees are at risk of an at-fault accident that damages the company vehicle, as well as causing property damage to another vehicle or even bodily injury to another driver for which your business is legally liable.
Deciding on the right plans for insuring your advertising firm depends on the size of your business, annual payroll, location, the sizes and number of locations, and values insured you have. Limits of liability chosen on general liability or auto liability also affect the cost. What your policies will cost will be a function of this mix of factors.
Recommended Policies
Your advertising agency follows risk management procedures to keep your exposures at a minimum. And yet, no workplace can be incident-free. As an advertising firm owner, you should consider insurance to assess and secure against the risks unique to your business.
Professional liability insurance
Sometimes the smallest of mistakes by your advertising firm could expose your client to large financial losses or a dip in sales. The client could sue you to recover the losses. In such a case, your professional liability coverage will kick in while you focus on running your business.
Some of the risks covered by professional liability are:
General liability insurance
You will get third-party property damage, bodily injury, personal injury, product liability, and advertisement injury. It allows small businesses to work uninterruptedly.
Workers’ compensation insurance
It takes care of employees’ medical expenses and a percentage of lost income if they suffer an injury or illness at work (make sure you factor in how many remote employees you have as well). Workers’ compensation also provides financial benefits for an employee’s dependents in the case of a work-related employee death.
- Professional negligence
- Errors and Omissions (E&O)
- Service not delivered as promised
- Copyright infringement
Scenario 1: Errors or omissions – Due to an oversight, your advertisement copy contains a wrong metaphor. You are sued for errors or omissions. Your professional liability insurance would respond.
Scenario 2: Bodily injury – A customer walks into your office. He slips and falls on the wet floor and breaks his ankle. Your general liability coverage will handle the lawsuit.
Property insurance
Property Insurance, which is included in a BOP, provides coverage on your building and business contents, business interruption insurance, and extra-expense coverage. The extra-expense coverage pays for a company's extraordinary expenses after an insured event.
- Scenario 1: Business disruption – Your firm suffers wind damage caused by a hurricane, damaging your building’s roof and contents. The BOP will compensate for the repair and replacement expenses and reimburse your net income loss until you reopen or the insured limit is reached.
- Scenario 2: Property damage – The wiring in your office sparks and erupts into flames. All of a sudden, a raging fire spreads. Your property insurance will reimburse for your building and contents damage.
Commercial auto insurance
Your employees will be using company vehicles for client visits. Hence, you need to get commercial auto insurance to insure in the case of certain scenarios.
- Scenario: While driving a company car to visit a client site, one of your employees accidentally runs a stop sign and hits another vehicle. Your commercial auto insurance would pay for the damages sustained by the other party and any bodily injuries sustained by the driver or passengers. If you purchased comprehensive collision coverage on the company vehicle, you would also have coverage for your damage.
Cyber insurance
Your cyber insurance will protect you from cyber-attacks, online breaches, system hacking, and ransomware demands. The expenses that are covered by the policy are to deploy relevant IT resources to check the issues, restore firewalls, software and malware checks, legal fees to defend the lawsuits filed, and regulatory fines to protect data.
Comprehensive costs covering advertising agencies
The comprehensive costs for advertising agency insurance policies vary based on several factors like:
- Annual revenue
- Location and value of assets insured
- Types of services provided and risks associated
- Annual payroll
A successful advertising agency requires a smooth operating flow and continuous service. The right insurance ensures that the advertising firm maintains its reputation while proactively providing the most creative services with optimum results.
To get an insurance program tailored to suit your needs, speak to Insurance Advisor’s licensed agents today.