Reputational Risk products are hot: Clients are actively asking insurers about available coverages, and insurers are reacting with a variety of products.
“Based upon what I hear, there are tremendous concerns in the market about reputational risks,” says Howard Mills, director and chief advisor of Deloitte’s insurance-industry group and former superintendent of the New York State Insurance Department. “In today’s world, you have one dissatisfied customer, and they can immediately get on the Internet and do a lot of damage to your company.”
“The product line for Reputational Risk is growing,” adds Carol Laufer, executive vice president of Excess Casualty for Ace Group. “People are asking for this coverage.”
In October, Ace launched an upgrade to its Catastrophe Management endorsement on its Commercial Umbrella Liability policy, increasing the coverage limit of $250,000 to $2.5 million.
Ace also expanded the coverages offered, which had been limited to public-relations expenses plus repatriation, funeral costs and psychological counseling to families. Coverage now includes the hiring of engineers and scientists for rescue attempts, as well as testing by independent laboratories to determine the cause of an alleged illness or disease from contamination.
“When we look at the catastrophes that are occurring in the types of industries that might be interested in this coverage, we look at the energy industry and the potentials for explosions and sudden and accidental pollution events,” says Laufer.
“We’re also concerned about terrorism in the hotel and hospitality industry,” she adds. “And there are a number of cats associated with the entertainment industry, including sporting events and stage collapses.”
Other insureds that are candidates for this coverage: food manufacturers with food-borne illness occurrences—and “any [business] with a high concentration of people is a concern, particularly as we learn about workplace and third-party shootings,” adds Laufer.
Companies that have launched or are working on Reputational Risk products include Munich Re, Allianz, Willis, Chubb, Marsh, Axis Insurance and Kiln, a London-based insurer targeting the hospitality industry.
THE PRODUCT PICTURE
Insurance companies are thinking about Reputational Risk in different ways, both from the product-development side and the underwriting side.
Most Reputational Risk products on the market now deal with some sort of expense reimbursement, loss-prevention consulting and post-event consulting.
“All the products I’ve seen out there are basically gift certificates for crisis operations: If there’s an agreed-to triggering event, you get a substantial check to head off the crisis rapidly. And if you handle a crisis quickly, you mitigate the damages,” says Anthony Johndrow, managing partner at consultancy Reputation Institute, based in New York.
Aon and Zurich last year developed Brand Assurance, a Reputational Risk product that focuses on front-end loss prevention as well as post-crisis expenses. Zurich will underwrite $50 million per event, with a $100 million limit.
Retail and higher education are two segments that are actively looking into Reputational Risk products, says Randy Nornes, executive vice president with Aon Risk Solutions: “We’re starting to see some of the orders show up; people are actually buying cover.”
The most recent inquiries have come through corporate marketing departments, he says. When crisis issues pop up, he explains, companies have to increase their marketing spend. “So they look at [coverage] as budget protection for their marketing spend.”
TRICKY RISK TO QUANTIFY
Reputational Risk has been among the Top 5 risks on numerous industry surveys over the last several years in terms of issues of greatest concern to senior management and board members, notes Tracy Knippenburg Gillis, Reputational Risk and Crisis Management practice leader for Marsh Risk Consulting.
Marsh is working on a Reputational Risk product and has had many recent conversations with Munich Re about its offering, she adds.
Trying to quantify Reputational Risk is the trickiest part for many insurers, Knippenburg Gillis says. Lost market share and lost share-price value are two of the more tangible losses related to the risk; other components “are harder to put some analysis around,” she adds.
For example, some of the other components of the risk include a changed perception of an organization—and therefore its ability to continue to fundraise if it’s a university or other entity dependent on donations; or whether it can continue to hire and retain the best people and attract and retain customers.
“While people are focusing on Reputational Risk, the reality is they have Crisis Response coverage in many policies, and it’s available in many of the policies now,” Knippenburg Gillis adds.
CHARTIS: WHAT IF TIGER WOODS WAS YOUR SPOKESMAN?
When in October 2011 Chartis launched ReputationGuard, a standalone product designed to meet the specific needs of small companies, it found that clients wanted Reputational Risk coverage not for the types of events related to their industry but for the unanticipated.
“It’s really for the [exposures] a company wouldn’t expect,” says Tracie Grella, Chartis’ global head of Professional Liability. “They could be accused of something that’s not in their normal course of business. The coverage is really for the unexpected.”
Social media is a huge concern for Chartis clients, Grella adds: “Any stories that might have been small and contained before are now quickly spread, directly impacting the organization. It’s different than the way they’ve had to respond to things before.”
Chartis had begun working on ReputationGuard in late 2009, just prior to the Tiger Woods infidelity scandal that cost the pro golfer millions of dollars in lost corporate-endorsement deals; at stake were not only his public persona but also the reputations of the many companies he promoted.
“It was an example for us to use: What would you do if Tiger was your spokesperson and your brand was being looked at negatively?” says Grella. “Those types of events could trigger the policy.”
Johndrow says corporations are taking a risk when they use a celebrity spokesperson, because psychologically, that frontman becomes the image of the company—and people start to think of the company as that person. “The closer the corporation comes to being human, the more the risk grows.”
FACTORS DRIVING REP RISK
One reason why companies may be increasingly interested in this coverage: According to the Reputation Institute’s 2012 Global RepTrak 100, consumers are looking more at a company’s reputation when shopping than its actual products.
“Sixty percent of consumer-marketplace behavior is determined by perception of a company, and only 40 percent is determined by perception of the product,” says Johndrow. “This behavioral link is why I see an increase in [insurance] products for corporate reputation.”
Ace’s Laufer notes that the growing corporate interest in Reputational Risk coverage is twofold: Overseas investment by U.S. companies has increased “tremendously” in the last 25 years—from $270.5 billion worth of investments in foreign businesses in 1986 to $4.1 trillion in 2011—and that increase has, in turn, created more worldwide risk and increased the potential for reputational catastrophes.
“The ability to handle those catastrophes has become more important,” Laufer adds.
SOCIAL MEDIA: SUBJECT TO THE WHIMS OF THE PAJAMADEEN
Many Ace clients are highly aware of the reputational damages associated with social media and have corporate strategies in place, says Laufer: “When you superimpose the growth of social media on top of the global economic growth, the concerns for reputational damage grow deeper.”
Social-media outlets like Facebook, Twitter, Flickr and Tumblr are not monitored for accuracy, like network news or newspapers.
As a result, “these international companies are subject to the whims of bloggers and others that use social media for commentary,” Laufer says. “That is why businesses are asking for coverage and growing more and more concerned about their reputational risk.”
The best approach in today’s global-communication environment is to “be prepared for anything,” says Nornes at Aon. “Social media can be hijacked; you can literally be a company that’s providing a great product and have no issues and then someone—an Internet group or organization—wants to take shots at you.”
The trick is to be prepared to react quickly, consistently and confidently. “You can’t flip the switch on this stuff. You’ve got to have a lot of preparation and thought as to how you’re going to do it,” he says.
Companies should also have a preparedness program that very clearly aligns how crisis management is going to tie into its continuity response; an early-warning system to get visibility to situations quickly and engage them in a proper time frame; and a very clear concept of how to divide that labor.
“It’s not about just getting a lot of smart people in the room,” Knippenburg Gillis says.