Reputational risk is a major concern to companies that are currently caught up in the horsemeat scandal. Findus, Birdseye and Burger King are just a few of the household names facing a backlash from customers, clients and the world’s media.
Reputational risk is a major concern to companies that are currently caught up in the horsemeat scandal. Findus, Birdseye and Burger King are just a few of the household names facing a backlash from customers, clients and the world’s media.
In the middle of January, Ireland’s food safety authority claimed that horse DNA had been found in beef burgers being sold in UK and Irish supermarkets. By the beginning of February, many of the UK’s biggest supermarkets had been drawn into the scandal, allegedly selling a variety of contaminated beef burger, lasagna and meatball products.
Oil company BP is still facing the repercussions of the 2010 Deepwater Horizon oil spill, with a trial underway in New Orleans to settle civil claims relating to the fatal oil rig fire that cost 11 lives and triggered the largest spill in US history.
The disaster could cost the company billions—indeed, the US Department of Justice reportedly offered BP $16 billion deal to settle the civil claims being litigated in New Orleans—and that is forgetting the irreversible damage that has been done to the company’s reputation.
Companies’ reputations are under constant threat, and these examples show the many different forms that those threats can take.
Martin Eveleigh, chairman of Atlas Insurance Management, says that when a reputation is damaged or under threat from being so, all effected companies are faced, at the very least, with the public relations expense of responding to the crisis.
He says: “How your customer sees you is vitally important whether you are a supermarket, a doctor, a car manufacturer or a defence contractor.”
“Reputational risk is seen as a much more serious issue now than it was just a few years ago, because of the vastly increased channels for dissemination of information.”
Eveleigh fears that it is not just the number of ways of disseminating information that is the problem, but also the velocity at which stories are able to spread around the world.
Andrew Barile, principal of the Andrew Barile Consulting Corporation, feels that as reputational risk is judged on the basis of exposure of an individual corporation, all businesses “need to explore the purchase of reputational risk coverage ”.
At the end of 2011, Chartis (now AIG) partnered with communications firms Burson-Marsteller and Porter Novelli to create ReputationGuard, a commercially available insurance product providing innovative coverage to help policyholders cope with reputational threats.
Developed by Chartis’s executive liability division, ReputationGuard offers clients access to reputation and crisis communications professionals as well as coverage for costs that are associated with avoiding or minimising the potential effects of negative publicity.
“Threats to reputation and brand image are more common and wide reaching today than ever before—and can impact on a company’s bottom line. Events such as executive scandal, questions about product safety, data breaches, litigation and other negative publicity can become front page news and quickly impact reputation or brands,” said a statement from Chartis.
Tracie Grella, president of Chartis’s professional liability unit, explained in a statement at the time that the public’s perception of the response to an event could have a lasting impact on an organisation’s reputation, with one person’s negative opinion becoming adverse publicity on a global scale.
In January, Atlas Insurance Management—in partnership with Anne Klein Communications Group (AKCG), a national crisis communications firm—launched a new service to aid captives participating in its risk pool.
Eveleigh explains: “The Atlas Reinsurance Exchange is a risk pool which enables captives to spread risk by sharing it with other captives. The participants are captives writing predominantly enterprise risks, for which the commercial market does not adequately cater.”
Eveleigh explains that most of the captives participating in Atlas’s risk pool issue policies covering reputational risk, so the firm enlisted AKCG to construct a risk management programme that provides crisis response services to captives and their insureds.
He says: “The team will be available to help captives and their insureds react in the event of a crisis by ensuring effective, positive and timely communication of the insured’s message.”
While the Atlas Reinsurance Exchange is one way for corporations to manage their reputational risks through captives, Barile explains that there are a number of other options.
“The captive may write a direct procurement reputational risk insurance policy directly to the corporation. Another approach would be for the corporation to buy the reputational risk policy from the traditional commercial market, and then have the captive reinsure the ‘front’ carrier,” says Barile.
Barile adds that coverage that is written in the captive insurance company can ultimately benefit a corporation, as the potential for increased underwriting profits and investment income could potentially lead to a dividend/loan being paid back to the parent corporation.
But on the contrary, Barile explains, captives could have a reputational risk loss, as it is the captive insurance company that is taking on the underwriting risk when writing coverage.
Companies need to understand the need for reputational risk in today’s digitally connected world, where facts and opinions—true or false—can become skewed and taken at face-value. It is important that they understand that reputation is more than just a PR exercise, and come to grips with the options that are available to them.
