May 11, 2018

Reputation risk is rampant, insurance is prudent, and loss is likely. Reputation insurance should be viewed in much the same way as property insurance for a town in tornado country.

By defining reputation risk this way, rather than as the risk of negative public opinion to be managed by marketing departments, the peril is measurable and manageable – as well as insurable – through the use of data analytics that are now available. Just as a physician measures the risk of heart attack without actually opening the body and examining the heart – through cholesterol levels, blood pressure and stress tests – so can we measure the risk of financial damage to companies from missed expectations—stakeholder disappointment, to be exact – through the analysis of various parametric criteria.

The implications of that linkage were significant – then and now – as it made clear that reputation risk was the consequence of failing to meet stakeholder expectations. Buffet’s public sharing of that warning before a House committee showed how keenly aware he was of the enterprise-level risk posed when stakeholders – in this case including legislators and regulators – are angry or disappointed over a company’s failure to meet their expectations.

When Warren Buffet famously told employees at Salomon Brothers that if they lost money, he would be forgiving, but if they “lost a shred of reputation for the firm, (he) would be ruthless,” he was not only setting expectations internally – he was setting them externally as well, revealing to all the company’s stakeholders what type of governance and management practices and systems they could expect the firm to employ.

May 11, 2018
Bond Buyer

Reputation insurance should be viewed in much the same way as property insurance for a town in tornado country.

Reputation is measurable, manageable, and insurable.

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.

Reputation value is a strategic power companies use to sell more, faster, and at premium prices; and to obtain labor, vendor services, as well as capital on preferred terms.

Steel City Re mitigates the hazards of ESG (reputation) risk that threaten reputation value. We use parametric reputation insurances, ESG insurances, and risk management advisory services to make our clients reputationally resilient.

Risk management, risk financing in insurance captives, and risk transfer through reputation insurances comprise the constituent elements of a comprehensive Steel City Re reputation risk governance and management solution.

Click on the highlighted text for a broader view of reputation risk case studies and reputation premium; or to explore additional articles by Steel City Re here, mentions of Steel City Re here, and comments on newsworthy topics by Steel City Re here.

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Context and Background

Risk managers are now central to the process for managing risks to reputation and that’s a process marketers and communications professionals need to be a part of. The oversight of reputation risk management is mission-critical.

Courts have increasingly been ruling that reputation is a mission critical function and oversight of its management is a responsibility of the board of directors. Courts are also ruling that marketing statements companies make – if they related to issues that affect their reputation, like ESG – may be considered material by investors. Litigation along these lines has yielded large settlements or verdicts for plaintiffs.

And now, the SEC has proposed new rules requiring disclosures by public companies related to their ESG activities; those statements could become a communications and reputational minefield.

As a result, reputation risk management is evolving into an intelligence gathering operation spanning the entire enterprise, roping in the enterprise risk manager, compliance counsel, and increasingly, reporting up to the Chief Legal Officer. There is a growing recognition that reputation is not a product merely of marketing and media coverage, but of the degree to which stakeholders’ expectations are aligned with actual performance. The reputation risk management process requires a thorough and ongoing analysis of stakeholder expectations, the risks of disappointment, and a plan for either managing those expectations or assessing and insuring against the cost of failure.    

One Last Question

Are ESG insurance or reputation insurance part of your strategy?