The Associated Press recently carried an announcement from the once-bankrupt insurance company AIG. The headline read, “AIG unit offers companies ‘reputation’ insurance.”

The coverage, in the form of a new kind of insurance product, would help companies protect their reputation in the event of major corporate crises, such as executive scandals, product recalls, data breaches and other “reputational threats.”

The product, ReputationGuard, will give policyholders access to a panel of crisis communication experts at Burson-Marsteller and Porter Novelli. The policy would also cover costs associated with minimizing the potential impact of negative publicity.

How sad and disappointing!

There is only one way to protect a company’s reputation, a system of corporate responsibility that is embedded in corporate strategy. That system must include transparency, accountability, stakeholder dialogue, sustainability reporting, good corporate governance and an ethical culture.

In AIG’s announcement of ReputationGuard, they note that: “Threats to reputation and brand image are more common and wide reaching today than ever before – and can impact a company’s bottom line.”

The company also noted that an internal survey of its public and private board members showed 69 percent of them ranked reputation risk as their primary concern. AIG believes that its policy would help companies “stem the flow of damaging publicity.”

The idea that an insurance product focused on crisis management, managing the problem after it has already happened can protect a company’s reputation is wrong, wrong and wrong again!