January 5, 2014

The cutting-edge Information management systems we like to see provide business decision makers with actionable intelligence. These systems work by identifying risk patterns from the federated information companies house in their various data repositories, from the world-wide-web of information, and from the tacit information (read, gut feeling) held by key stakeholders.

The element of surprise is a common theme underpinning reputation risk. Because surprised stakeholders tend to punish companies that fail to meet their expectations, information management is a key strategy for providing better awareness for executive decision makers, and also for better managing stakeholder expectations.

Facilitators of Effective GRC/Reputation Risk Management

Board-level communications, including regulatory filings, that do not present a uniform view of reputation risk and its management

Human resource management systems that do not factor enterprise-level reputational consequences into the incentive systems

An organizational framework that is not in place to manage and maintain a fluid information environment

During the underwriting process, Steel City Re looks for evidence of negative impacts to effective governance, controls and risk management. Examples of common issues that are underwriting red flags are information management and human resource management strategies that are likely to lead to unpleasant surprises, or governance policies that create ambiguites about the understanding of corporate values. While the objective Reputational Value Metrics might indicate that stakeholders are assuming responsible governance, Steel City Re’s underwriters might conclude that stakeholders were at risk for a rude surprise if the following were encountered:

Red Flags: General Impediments to Effective GRC Management

Thereafter, a series of questions directed to a potential insured comprise the core of the Steel City Re underwriting process. These questions are listed below. Certain answers to these questions comprise red flags that may preclude binding; others are not only favorable in terms of a successful underwriting but may also provide cost relief on the insurance premium. It is worth noting that a company’s success in meeting underwriting standards is also a signal to stakeholders about corporate value.

Steel City Re begins underwriting the integrity of a company’s governance, controls and risk management systems, and by implication, the personal reputation of the C-suite and Board of Directors, with a review of a company’s Reputational Value Metrics. These indexed indicators of stakeholder expectations, calculated by Steel City Re without any input from the companies, provide intelligence on how companies are being perceived by their stakeholders. Each week, Steel City Re calculates metrics on about 7400 public companies.

Reputation Risk Underwriting: General Issues, Warning Signs, and Tips of the Hat

January 5, 2014
Risk & Insurance

“The goal of reputation risk management is to reduce the risk of a change in stakeholder expectations.”

Reputation risk management: mitigating both disappointment and noxious media.

Reputations are valuable strategic intangible assets. Threats to these assets⏤ enterprise reputation risks, often mislabeled “brand risks” ⏤ need to be managed, and management needs to be overseen through reputation risk governance lest reputational damage or reputational harm result in long-tailed go-forward losses in economic value and/or political power. Because these intangible risks arise from the interplay of stakeholder expectation, experiences, and media amplification, parametric insurances for intangible asset risks, for reputational value, for reputational harm, and for reputation assurance help mitigate risk by telling a simple, convincing and completely credible story of quality reputation governance to stakeholders. This story telling effect is the expressive power of insurance complementing insurance’s better known instrumental power of indemnification.

Risk management, risk financing in insurance captives, and risk transfer through reputation insurances comprise the constituent elements of a comprehensive solution. What’s your strategy?