Loss of reputation overtook business interruption as the top concern of companies in the United Kingdom, according to a survey of top firms by Aon Limited.
Aon said loss of reputation, now seen as the number one risk, was ranked fifth in importance in 2003 by companies in the UK.
Max Taylor, deputy chairman of Aon Limited in London, told National Underwriter that a threat to a company's reputation "knocks the share price, knocks the ability to sell products and services."
As risk management gets more sophisticated, companies are examining possible scenarios to determine what could be most damaging to them, he said.
An organization has to "dig into exactly what would damage a reputation," he noted. "It might be product impairment or tampering if you are a manufacturer on the retail side. Or it might be a variety of other things if you're on the service side, such as a scandal."
Even though these possibilities existed previously, corporations are "much more alert to what really worries us…and that's where I think this focus on reputation has come from," Mr. Taylor noted.
Business interruption moved down to second place from joint first place in 2003. The impact of regulation and legislation made the survey list for the first time in fifth place, reflecting increased pressure from regulators on companies to enhance transparency, corporate governance and accounting standards, according to Aon.
Although loss of reputation holds the number one position, the survey suggests that the number of companies conducting risk audits in this area has reduced since 2003. This could be explained by loss of reputation being wrapped up in other audit processes, Aon said.
It may also indicate, Aon noted, that companies are not committing the necessary resources to fully understand their exposure, a deficiency further compounded by the difficulties insurers face in providing cost effective and economic risk financing to mitigate intangible risks.
This is due to many external pressures, Mr. Taylor said, as well as corporate governance issues in the UK and in the United States. "I think it's a recognition that understanding risk, positive and negative, is very important," he said. "Recognizing how [risks] interact with each other is very important, and you need people with specific skills and experience to do that."
Risk management, however, continues to gain importance in the company agenda with the number of UK companies with risk management/insurance departments increasing by 30 percentage points to 84 percent, compared to 54 percent in 2003. Some 22 percent of companies employ more than 10 people in these areas, according to the survey.
Mr. Taylor said that although trends can always be affected by events, such as the terrorist attacks of Sept. 11, 2001, the underlying survey trend "points toward more sophistication of internal risk management, risk analysis and risk identification techniques, bringing together traditional insurable risk with other risks." These include economic and financial risk and the emerging trend, which is regulatory risk, he added.
The survey found that:
o Failure to change, which shared the number one position in 2003, has slipped to third place
o Product liability/tampering has risen from ninth place to fourth as the long-term real risks of product recall on brand value are realized
o Traditional people-based risks such as employee accidents and employee recruitment/retention that featured in third and fourth places, respectively, in 2003 have slipped down the risk list. Employee accidents are now seventh place and employee recruitment/retention disappeared from the Top 10 altogether, according to the survey.
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The survey also found that value for money remains the most important criteria when choosing an insurer, although less so than in 2003, at an average of 7.2 out of 10 compared with 8.3 out of 10 in 2003.
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