Reputational Risk Insurance can help protect your company from losses in a crisis due to reputation damage.
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What is Reputational Risk Insurance?
There’s no single type of Reputational Risk Insurance. Instead, there are a clutch of options from which businesses can choose when seeking to protect their name, all of which have the same aim: lowering your risk of damage to your hard-earned brand.
Reputational Risk Insurance typically comes bundled along with other major risk policies, but it is also offered in a standalone form. These are some of the more common forms you’ll see Reputational Risk Insurance offered as:
- General liability insurance. Reputational Risk Insurance can be packaged along with your general liability policy, often related to the personal and advertising injury coverage portion of your policy. If you’re looking to protect against slander, libel, or advertising lawsuits that may damage your reputation, you may find this useful. However, if you’re looking for a more wide-ranging reputation safeguard, this may not prove enough for your needs.
- Crisis management insurance. While crisis management once focused on reputation management as a whole, it has since pivoted and narrowed to pinpoint online properties as well as technology-related omissions and other errors. Examples of what may be covered here include data breaches, workplace violence, and product contaminations or recalls. This coverage may address hiring a public relations firm, issues that come up after a controversial event, or loss of income. It is usually purchased by larger corporations, though anyone may be eligible to do so.
- Cyber liability insurance. Risks arising from the world of information technology are targeted by this coverage, which bridges a gap often not addressed by typical insurance policies. A wide range of threats are the focus here, ranging from data breaches to denial-of-service attacks to public-relations cleanup and reward monies. Moreover, social-media activity likely falls under this coverage, particularly as it relates to a firm’s reputation. If you run the risk of a large security breach, you may be particularly interested in this coverage; however, be aware that the scope of cyber insurance is deliberately narrow in order to lessen underwriter risk, so your individual situation may not automatically qualify.
- Standalone policy. While the coverages listed above are extensions of larger policies, standalone Reputational Risk Insurance is relatively rare and typically reserved for the largest of firms. That’s because it can be extremely expensive, putting it out of reach for most small- to medium-sized businesses. However, if you head up an extremely large business and are concerned about losses in sales stemming from damage to your company’s reputation, this is coverage you might want to consider. Either losses, crisis management expenses or both may fall under the coverage umbrella, depending on your company’s needs. Keep in mind, though, that not only is standalone Reputational Risk Insurance expensive, it can also prove difficult to underwrite. Coverage limits range from $1 million to the hundreds of millions, and the concept of a standalone Reputational Risk policy continues to evolve, so expect changes to continue as the industry gains ground.
- A major vehicle manufacturer decides to buy a Reputational Risk policy to safeguard the company in case environmental activists accuse the company’s new luxury hybrid SUV of causing unintended environmental damage. According to their individual policy, the firm is covered on a variety of risks, up to and including retaining a public relations firm to mitigate negative media coverage. Should such an event occur, they are eligible for reimbursement for lost sales as well as continued crisis management for as long as it is needed.
What are the most common reputation-based risks?
According to Aon’s 2015 Global Risk Management Survey, which polled more than 1,400 representatives of both public and private businesses, reputation damage is a number-one concern. Specifically, the major reputational risks included:
- Property damage
- Failure to employ major talent
- Failure to meet client needs
- Slow recovery from marketplace problems
- Technology breaches
Here’s the problem: it takes just one crisis to permanently harm your company’s image. What’s more, given that online sources such as social media are lightning-fast to pick up on these stories, you may find yourself scrambling to do damage control.
- An online prankster passes a phony press release to the media in the wake of an accident, which is picked up by newswire services. Rather than addressing the facts, the press release makes sly fun of the company itself by deliberately bungling the names of those involved. Since the firm has retained Reputational Risk Coverage, it can afford to hire several public relations firms to fight the fire on a few different fronts, including social as well as traditional media. While a struggle, the damage control appears to work after a few weeks and the hubbub dies down.
Should I invest in Reputational Risk Coverage?
If you’re wondering whether Reputational Risk Insurance is worth the expense, it’s time to ask yourself the hard questions about your business. Such questions may include:
- What is my company’s current reputation? If there have been breaches of trust, in which areas have they occurred and what needs to be bolstered in order for matters to improve?
- Has my company had a previous breach? More than one? Has a pattern developed and does it need to be addressed?
- Do I retain extensive sensitive records? If they were breached, who would this damage and to what degree?
- What is my company’s financial picture and how would it be affected by damage to my reputation? How does this compare to the cost of insuring my risk? Keep in mind that underwriters will be asking these questions as they consider your firm for coverage.
What exact coverage do I need?
Unless your business is amongst the largest out there, you probably won’t need to select standalone Reputational Risk Insurance. Instead, you will likely opt for packaged coverage, where your traditional policy will be combined with a crisis management rider.
Before choosing your coverage, it’s important to draft a risk management plan to assess and control your greatest areas of risk. These are the crucial steps to take:
- Risk assessment. What are your greatest areas of vulnerability? For example, if you are a medical professional, you may be most worried about malpractice suits. However, if you run a restaurant, you want to cover health and sanitation issues. Risk areas vary by industry, so make sure you’re thinking of your specific line of work. However, ethical issues cross all professional lines—so always consider these.
- Hold your values high. In line with the question of ethics, make sure that you put your professional standards first. This includes ensuring that your employees, partners, and suppliers are doing the same.
- Come clean and move on. When responding to adverse incidents that can affect trust in your company, don’t try to sweep things under the rug. By responding proactively and honestly, you can not only mitigate reputational damage, but even increase trust in your firm.
- Use the right insurance to address your risk. For example, if you are running a retail firm, data breaches can pose a major problem. In this case, purchasing cyber liability coverage will help protect you from technology issues that in turn threaten your reputation.
- A mid-sized furniture supplier analyzes its reputational risk and finds that hacks pose a major threat due to its significant customer database. Specifically, the supplier wishes to cover potential claims from third parties affected by potential breaches. The company decides that it doesn’t want to spend the money on a pricey standalone Reputational Risk Policy, but that it needs to protect itself nonetheless. Ultimately it decides to purchase cyber liability insurance, packaged with a crisis management endorsement.
Damage to your company’s reputation can have major repercussions on your ability to not only make future sales but also connect with current and future customers going forward. Reputational Risk Insurance can give you the power to mitigate damage done by any number of adverse events, including accidents, hacks, and data breaches.
Restoring your reputation takes time and resources—and may be a futile effort depending on the severity of a given incident. Depending on your company’s size, status, and history, Reputational Risk Insurance may be one of the smartest moves you can make to protect your business.