Insuring reputational risk opens opportunities for new business

Reputation is one of the great intangible assets of a business or organisation.

A good reputation can help build real value but a crisis can harm reputation rapidly, hitting revenue, the ability to hire and retain talent, and the support of stakeholders.

As investment guru Warren Buffet once said: “It takes 20 years to build a reputation and five minutes to ruin it.”

Many organisations recognise the truth in this statement and consequently protecting reputation is near the top of their agenda.

Insurers take on the protection of corporate reputation in a number of ways through direct cover, as well as other products such as Business Liability, Cyber or Product Recall.

Beazley, Tokio Marine Kiln and RenaissanceRe are part of the Custodian Consortium at Lloyd’s, which offers a reputational risk solution to protects insureds through a crisis.

The cover is available to US-domiciled organisations of all sizes, specifically targeting companies with up to $5bn in revenue, including both public and private companies, and for-profit and not-for-profit enterprises.

Crisis management

Business interruption cover is triggered by a drop in revenue that has been pre-agreed at policy inception.

It then provides crisis management expertise to minimise reputational damage, as well as substantial loss of profits cover to protect companies.

Rachel Turk, focus group leader of Beazley’s London-based D&O team, said: “In an era in which news travels faster through social media, risk to hard-earned reputations is greater than ever before.

”Preparedness and speed of response are critical. Our policy has been designed to ensure that crisis response expertise is available, backed by the necessary funds, as soon as an incident occurs.

“By pre-agreeing the level of revenue drop that will trigger a claim at the outset with our underwriters, clients can be sure that no time will be lost in providing cover that meets their requirements, and generally without the need for loss adjustment.”

However, reputation is difficult to quantify because it is not easy to understand, measure, insure and mitigate reputational risk.

Connected risk

Moreover it is affected by not just a company’s own behaviour but the industry they are operating in, implying it is a network or connected risk.

Suki Basi, CEO of risk solutions experts Russell Group, said: “Having the understanding of a company’s network is vital to tackling the issue of reputation insurance.

”This will a allow a (re)insurer or corporate to understand not just who the company is connected to directly but also how dependent the company is on the network and the network on the company.

“Given that reputation helps to build value, boards must therefore move to protect and build reputation across their networks, which suggests more effective sector-wide collaboration and information sharing.”

Insurance also covers reputation under Business Liability, which protects the client in the event of cases such as libel, and Cyber, which protects client in event of sensitive customer data being hacked or leaked.

A vital component of any reputational coverage is the crisis management that will help mitigate the damage of a major issue impacting on a company.

Damian Beeley, Partner at PR firm Haggie Partners, said: “The fundamental thing is plan, you should scenario-plan.

”The thing that will probably cause your reputation most harm is being caught unawares.

“If you’ve planned for a worst-case scenario, and you have a response plan to hand, and you execute that you will mitigate the after effects even if you don’t get rid of the problem.

”Our advice is plan, rehearse and if something happens execute the plan and follow up afterwards.

“However, during the process things can change so everyone needs to be fleet of foot to be able to rethink and do something different if necessary.”