Reputation risk has been ranked as the number one insurance in the past 13 years, according to a recent survey by AON, the insurance brokers. This is not set to change. Volkswagen is a recent reminder of the dramatic impact that even extended to Germany’s economy and refugee politics.
We are well aware that things go wrong in Australia as well.
Vodafone’s mobile phone outage in 2014 caused significant brand and humiliation damage, which played out in the full glare of the media. Customers left in their droves and the company was almost lost. Telstra also suffered from a similar outage challenges in 2016. The perception amongst the public may be that this problem could occur again affecting customer confidence in future internet connection purchases.
What is reputation risk insurance?
The name perfectly describes this cover insurance type. It is insuring for financial compensation in the case of a loss to an organisation’s reputation.
Other insurance types like cyber liability, environmental liability, public liability and product recall touch on reputation loss but do not specifically specialise in the area of reputation loss. Product recall insurance, for example, has the exclusion of ‘no prior knowledge.’
Reputation risk insurance deals directly with the effect of adverse media publicity. Its development is still in the infancy stage and often products are specially developed and worded to meet an organisation’s requirements.
In our continuously growing powerful digital world where perceptions and opinions are often regarded as fact, organisations run the gauntlet protecting their reputations. One bad customer experience, disgruntled ex-employee or supplier who does not deliver according to their contract may all set in motion an avalanche of events negatively affecting an organisation’s reputation.
According to a recent Liberty Insurance survey, 89% of non-executive directors thought that their organisations could NOT respond very effectively to a reputation crisis while less than half (43%) of organisations were confident about having a plan to recover from losing reputation. These are scary results.
The impact includes customer relations, loss of earnings, fall in share price, being an employer of choice and to affiliated companies in other regions.
The insurance strategy
Reputation loss is invariably accompanied by financial loss with declining profits, drop in share price anymore. Insuring a business against reputation loss as well as financial loss appears obvious.
The challenge with insuring reputational loss, however, is to firstly understand the loss and then to quantify and objectively measure the impact of the loss. What are the business elements to be protected like brand, image, personal image, sales and product? How are these impacts measured? According to 2013 ACE European Risk Briefing, 70% of organisations surveyed agreed that advice and finding information on managing reputation risk was difficult.
When reviewing reputation loss, there is still much clarification and product development to be achieved. This is requiring a closer partnership between the underwriter, broker and organisation to works towards a tailored product.
One of the most difficult insurances to manage is experiencing a growth in the awareness of its need.
If any of this resonates with you, feel free to call us!