Corporate Reputational Risk Insurance Coverage Now Available

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To begin with, a reputational risk can be defined as an event that reduces the general public’s perception of a particular business and this is made worse by social media. When a business faces a reputational risk, more often than not, the initial reaction of most CEOs is to resort to their PR firm which likely runs their advertising programs. The usual tactic of these companies would be to neutralize criticism from journalists. Thus, reputation management has evolved beyond public relations. It is also possible that behind-the-scenes bullying stories on social media were also practiced.

The rapid growth of mobile devices has resulted in unforeseen levels of viral immediacy in story sharing, so negative reviews about products and services can spread at any time and can be very difficult to control. Younger generations, an increasingly important consumer segment, are more inclined to use social media to consume information and opinions rather than traditional media sources like established newspapers.

As reputational risk has become increasingly relevant, especially for large companies, insurers have difficulty underwriting this risk because they need to know the components of their potential client’s reputation vis-à-vis customers, suppliers, peers and investors. In addition, the problem of determining the premium and the limits of protection should be mutually acceptable to the insured and the insurer. If the protection limits are high enough, the insurer may consider sharing the risk with a rated reinsurer.

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

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


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