When celebrities mess up, “disgrace insurance” steps in

When Lori Laughlin was arrested for allegedly paying half a million dollars to score her two daughters admission to the University of Southern California, it was a Tier 2 scandal. But when Felicity Huffman pleaded guilty to paying $15,000 to change her daughter’s SAT score, it was only a Tier 1. Louis CK’s downfall? That’s apparently a Tier 2, since he apologized and still seems to be welcome in many comedy clubs. Weinstein and Cosby, well, those were both the highest level possible: Tier 5s.

This is all according to the scale designed by Spotted, a Boston startup that’s on the forefront of a particularly timely kind of product: “disgrace insurance.” Though policies like it have been around since the 1980s, the disgrace insurance industry is growing for reasons that are obvious (like the increasing fragility of celebrity reputations after #MeToo proved the public now wants to take allegations of sexual misconduct seriously) but with a whole new host of difficulties: How, exactly, are you supposed to craft a detailed insurance policy that puts a number on Kim Kardashian’s political activism or the leaked lewd texts of a Real Housewife’s husband?

That’s the subject of a feature published Monday by Vulture’s Boris Kachka about Spotted and its namesake product SpottedRisk, which plans to take its disgrace insurance to market later this summer with an ad in the Hollywood Reporter that asks, “HAVE YOU BEEN DISGRACED?” It will offer companies financial protection for celebrity public scandals, encompassing everything from drunk driving arrests to racist tweets or a crime as unpredictable as the college admissions scandal, up to $10 million. Payouts, meanwhile, are based on the public’s reaction, in a system numbered 0 to 100 that SpottedRisk calls the Public Outcry Index, and are paid to studios, record labels, sports teams, or anyone employing a potentially “risky” public figure.

Essentially, SpottedRisk has attempted to data-fy “cancel culture,” and in doing so, put a price on what society will tolerate from its most famous citizens.

What is disgrace insurance, and where did it come from?

Film and TV producers have long purchased insurance policies for death and disability when it comes to big stars, but disgrace insurance arose in the 1980s alongside the popularity of the celebrity endorsement. Companies wanted a way to shield themselves from financial losses should a star commit a crime or otherwise taint the reputation in which the brand had invested.

According to Kachka, disgrace insurance received a big boost thanks to reality television, which often sets out to cast the wildest, most unpredictable person in the room even before the cameras are turned on. When a contestant on the 2009 VH1 show Megan Wants a Millionaire was suspected of murdering his wife and then killed himself a few days later, the show’s cancelation reportedly cost Viacom seven figures in losses.

Today, disgrace insurance is used by thousands of reality shows, but SpottedRisk is focused on big-name stars and big-budget productions. Currently, according to Kachka, it keeps data on 27,000 public figures, each with 224 attributes and risk factors, which the company then uses to predict future wrongdoings. How much a company is owed, then, is determined by what it calls its “Public Outcry Index.” SpottedRisk uses a research firm to conduct online polls to assess said outcry, which determines the seriousness of a scandal: A Tier 1 event (Felicity Huffman, for instance) will pay $2 million to the insured out of a $10 million policy, a Tier 5 (Weinstein, Cosby) would pay the full $10 million.

The payouts themselves will come from investors from the insurance company Lloyd’s of London, which has historically dealt in niche insurance cases (Dolly Parton’s breasts, for instance).

Seems a little dicey!

Yes, which is why these kinds of policies and payouts are still extremely rare. As Deadline noted last year, insurance normally costs producers 1 to 2 percent of their budgets, but disgrace insurance could double that cost. Plus, it’s extraordinarily unlikely that companies will ever see a cent: Bob Jellen, the managing director of HUB Entertainment Insurance, which deals heavily with disgrace insurance, told Deadline that he’s written more than 4,000 of those types of policies, but that they’ve only been invoked about five times.

While there is plenty of demand for such services, now that public scandals are so much more easily exposed on social media and the internet, Kachka notes that insurers are wary of drawing up policies that protect major films and TV shows. Unlike reality shows, which are cheaper and don’t usually hinge on A-list talent, “when only a handful of shows and movies are asking for disgrace insurance, the few that aggressively seek it out make insurers suspicious about what producers know.” In other words, there’s a higher potential for insurance fraud.

But the rise of disgrace insurance also poses questions that are less practical and more existential. As Kachka writes:

Here is the controversial, incontrovertible fact of disgrace insurance: It is not a moral arbiter of behavior but a reflection of society’s tolerance of it. Spotted aims to quantify our standards, which are never as immutable as we think they are. Disgrace has always been subjective; that’s why past policies have been constructed so vaguely.

Basically, when you’re attempting to put a price on a culture’s acceptance of certain crimes, it will always be tainted by countless different factors, few of which are objective. In a piece for Mel Magazine on Spotted earlier this year, Stephen Blum compares the idea of data-fying celebrity risk to COMPAS, the software used by law enforcement to determine a defendant’s likelihood of being arrested again in the next two years, which can then be used by a judge to determine sentencing or bail. In 2016, ProPublica published an exposé on the service, reporting that it was biased against black people; two years later, a study by two computer scientists found that COMPAS had the same accuracy as a guess by untrained humans.

Hany Farid, one of the scientists who worked on the study, told Mel that the problem was that the data itself had been tainted by racism. “If you’re black, you’re more likely to be arrested, charged and convicted, so of course the algorithm is going to reflect that back to you,” he said. “If you’re using data from a society that has a troubling past, I’m concerned.” This, then, could have the effect of showing a black celebrity as posing “more risk” than a white one and prevent a black celebrity from, say, receiving a major brand endorsement, thereby reinforcing racist hierarchies.

Despite these risks, Spotted has raised more than $11 million, half of which came from a Boston private equity firm, and is planning to undergo a round of Series B funding this fall. Considering the increased demand from producers, disgrace insurance could soon turn into standard practice for every kind of brand-celebrity relationship, from blockbuster movies to Instagram ads.

It’s worth noting that the insurance does not cover victims of a disgraced public figure’s misconduct. Instead, that money remains in the hands of whoever the celebrity is working for, which means that disgrace insurance exists to protect the money of already wealthy individuals and companies.

While society is still in the process of determining the “right” way to come forward with allegations against a public figure, or the “right” way for a disgraced celebrity to return, the rise of disgrace insurance proves what we likely already knew: Companies will probably be just fine.

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