Insurance coverage of corporation reputation risk now available

TO start, a reputation risk may be defined as an event that reduces the perception that the general public has of a particular company and this is aggravated by social media. When a company faces a reputational risk, more often than not, the initial reaction of most CEOs is to resort to their public relations firm that likely handles their advertising programs. The usual tactics of these firms would be to neutralize criticism of the news reporters. Thus, reputation management has enjoyed an evolution beyond public relations. It is also possible that tales of intimidation from trolling on social media have also been practiced.

The rapid growth in mobile devices has resulted in unforeseen levels of viral immediacy in the sharing of stories, thus negative commentary about products and services can spread anytime and can be very difficult to control. The younger generations, an increasingly important consumer segment, are more inclined to use social media to consume news and opinion rather than traditional sources of media like established newspapers.

While reputation risk has become increasingly relevant especially for the large corporations, insurers have difficulty in underwriting this risk, as they have to know the components of their prospective client’s reputation in relation to customers, suppliers, peers and investors. In addition, the problem of determining the premium and the limits of protection would have to be mutually acceptable to the insured and the insurer. If the limits of protection are rather high, the insurer may consider sharing the risk with a rated reinsurer.

Even more needed is that insurance brokers should recognize the reputational risks they face and that a consensus on qualification requirements and professional standards is a necessary requirement to be a broker.  Also, they should refrain from recommending insurers without a financial strength from a recognized agency.

The author is a risk management consultant and Editor of Insurance Philippines magazine.


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