The Insurance Broking Faculty New Generation Group has called for brokers and insurers to rise to the challenge of providing brand and reputation risk protection for small and medium-sized enterprises, as Ant Gould reports
Social media and global connectivity now mean that incidents with the potential to cause damage to a company's reputation have increased almost beyond comprehension. At present, there is little insurance protection for businesses and a new report from the Chartered Insurance Institute (CII) Insurance Broking Faculty New Generation Group challenges the insurance industry to rise to the challenge of helping customers mitigate brand and reputation damage.
In its in-depth paper, the New Generation Group looks at the need for brand and reputation risk cover; the barriers to insurer participation; the level of coverage currently available; and how the insurance industry should respond.
At the moment, there are only a few insurers offering brand and reputation cover -- and of the more innovative insurers willing to take on such risk, each one tends to target products at the larger corporations. This, says the report, has left an uninsured gap for small to medium-sized enterprises (SMEs). Ironically, it is the SMEs that require the most assistance, as most will not have the luxury of a corporate communications department to mobilise an in-house crisis management team.
As you might expect from an Insurance Broking Faculty report, the group believes the role of insurance brokers is key to solving the coverage conundrum, citing John Nelson, chairman of Lloyd's, speaking in 2013: "Brokers have always grown the insurance base.
It wasn't the underwriters who spontaneously decided to write policies for Zeppelins, spaceships or cyber -- it was because a broker came over to their box and asked them for cover. It is the brokers who are in the vanguard of developing business."
Following this theme, the group's report provides an overview and analysis of the existing insurance solutions offered by the market and a thorough analysis of the difficulties and barriers to providing solutions. They identify the five most commonly cited barriers, namely: quantifying a loss -- moral hazard; claims and pricing; defining a trigger event; and lack of demand.
Key recommendations
One of the group's key recommendations related to these barriers is for action over data capture and collection, which is urgently needed to allow quantification.
"Insurers and brokers alike must
co-ordinate a shared approach to recording loss data," says the report, a call backed up by Kasper Ulf Nielson, co-founder of the Reputation Institute in his foreword to the report. Mr Nielson, whose organisation has defined reputation and reputation risk and has produced the RepTrak model, says: "The definition of reputation and reputation risk is set and the measures are here for companies to use. The only thing missing is agreeing on the measure to capture the negative reputation impact. When that is done, the insurance industry can develop a credible product for reputation risk insurance on the market. I encourage you to take that step, as this will help many companies move forward in this new and complex social world."
With a view to driving change rather than just highlighting the issues, the report also includes a breakdown of four elements of protection that the group believes a brand and reputation risk policy should cover.
First of all, prevention: Pre-loss risk management and consultancy is imperative, says the report. Insurers must be comfortable that the company buying the insurance product has a suitable level of corporate governance in place. A social media usage policy should be a prerequisite and training around brand management could also be offered.
Second, crisis costs and containment: The costs and expenses of employing a public relations (PR) firm to manage the brand's reputation during an adverse media period should be provided. All communications should be channelled through the PR firm in the first instance. A payment should also be made available to allow the company to mitigate any further loss occurring, not covered under a business interruption policy.
Third, resulting loss of revenue: An element of revenue protection would provide the basis of a marketable product and a tangible level of cover, which any insurance buyer would expect. To quantify the revenue loss associated with a reputation-damaging event, create a simple declaration of projected turnover at the beginning of the policy period compared with the dip in revenue following the reputation damaging event. This would allow an underwriter or claims assessor to adequately settle a claim. For the sake of clarity, the insurer could agree that any loss of revenue following such an event, which is at odds with the projected turnover, would automatically be adjudged to be resulting from the reputation-damaging event. With an indemnity period, similar to business interruption cover, any period of sustained loss would be limited.
Finally, any product should, argues the report, include post-loss risk management and consultancy: Assistance to help restore brand and reputation in the months after a loss is important. Insurers must provide this cover through in-house risk managers or third-party PR firms. Insurers should act in the best interest of the customer by assisting them as far as possible to mitigate any further damage. The insurer will still have a vested interest in their client recovering from any brand and reputation damage long after the event.
In the short-term however, and in the absence of an insurer developing a suitable product, the report argues the insurance industry should pull together to address the issue. The group suggests the establishment of "a facility to allow the pooling of 'brand and reputation' risk across the UK". It adds: "Ideally administered by a partisan industry body, this facility would allow brokers to place risks through a panel of insurers. Insurers would offer an agreed amount of capacity, take on an equal share of the risk and, crucially, share in the payment of claims, thus mitigating the effect on carriers of catastrophic loss. This would kick-start a solution that otherwise may take decades to develop and, crucially, premium levels would reduce to a realistic level for SMEs."
The group's view is that once the insurance industry becomes more comfortable with brand and reputation risk, and as data becomes available, the industry will revert to a more traditional distribution model. "This would allow for insurers to begin offering 'brand and reputation' cover by way of an extension to commercial combined or liability policies. In the meantime, more insurers could provide policy extensions to assist SME companies with prevention, mitigation and crisis management."
The New Generation Group does not want its report to languish on a website gathering proverbial dust and, despite the fact the members of the group have now technically finished the CII programme, they are determined to drive real change are actively engaging with insurers to garner support for credible insurance solutions to meet this clear customer need.