An article in the March issue of Claims Magazine noted that reputational risk is a newcomer to the list of covered risks. In 2007, The Harvard Business Review reported the framework for enterprise risk management proposed in 2004 by the Committee of Sponsoring Organizations of the Treadway Commission does not contain any reference to reputational risk, although it mentions virtually every other imaginable risk.
To understand why reputational risk has emerged as front line coverage, we need to survey how the world has changed during the intervening 15 years.
Evolving technology — In 2015, a data breach at Anthem exposed personal information of 78.8 million current and former customers. In 2016, a data breach at Uber exposed personal information of 57 million users and 600,000 drivers. In 2017, a data breach at Equifax exposed personal information of 148 million users. In each of these and many other cases, the company’s reputation was severely damaged. While the introduction of high-speed information technology has been a boon to companies, it has also exposed them to the risk of large data breaches.
Personal devices — Police departments, in particular, have experienced reputational damage because of video and photos captured on personal devices, including their own body cameras. The ubiquity of these devices has the potential to turn nearly every passerby into a citizen reporter.
The internet — There is little the internet doesn’t touch today, including reputational damage. It has long been said bad news travels fast. It now travels even faster as a result of the internet.
Social media — Social media is the village square on steroids. When villagers would gather to share gossip about someone’s misdeeds or misfortune, reputational damage was limited to the number of people filling the square. Consider that 2.25 billion active users visit Facebook on a daily basis and 500 million tweets are sent each day. Once a story is launched to social media, there is no shutting it down. It goes viral as it instantaneously circles the globe, often without regard to the veracity of the facts.
Changing standards of acceptable behavior — Of course, standards of acceptable behavior constantly evolve. Once upon a time, men working at Campbell Soup Company did not remove their suit jackets when in the office. How many men in your office today even wear a suit and tie? When was the last time you saw someone light up a cigarette in the office, on a plane or at a restaurant?
Words once freely spoken, and thoughts once freely expressed, can now blow up a person’s and a company’s reputation. Uber, Papa John’s and Tesla are just three companies for which inopportune words spoken by chief executives damaged the reputations of both the individuals and the companies.
Grievance culture — Collectively, we are far less likely to grin and bear it, turn the other cheek, let bygones be bygones, forgive and forget, and look the other way these days. For better or worse, today our fellow citizens are quick to take offense and feel empowered to report grievances. These reports can result in reputational damage.
Lower threshold for error — While I won’t say there are no second chances today, I will say there are fewer. Warren Buffett once said, “It takes 20 years to build a reputation and five minutes to ruin it.” Today it might take two-and-a-half minutes.
As insurance professionals, our number one priority is to protect our clients. While this includes helping them transfer the risk of reputational damage to insurance products, it begins with helping them to understand the potential extent of this damage.
By helping clients plan their response to reputational damage before an event occurs, we have begun to do our job. The cracks traced to reputational damage spread quickly. A plan including available resources should be in place and ready to roll out as close to the event as possible. As in all things, control of the narrative will be up for grabs. A speedy response can help your client seize control.
Managing reputational management claims can be tricky. There are photos to document damage to a home or plant. There is a physical object to inspect in the case of a wrecked car. There are physical injuries or doctor bills when a worker is imaged. Tangible documentation of reputational damage isn’t quite as easy.
It is no simple matter to determine how much a reputation is worth. When can you say a reputation has been fully restored? Can a reputation be fully restored?
For claims professionals, though, this difficulty has an unseen benefit. Advocates who develop an intuitive feel for reputational damage claims should be able to command top salaries now and in the future.
It’s time for us to get to work.
Jenean Meier (firstname.lastname@example.org ) is a claims advocate at KMRD Partners, Inc., a nationally recognized risk and human capital management consulting and insurance brokerage firm located in the Philadelphia region serving clients worldwide.