Steve Forbes’ assertion that “your brand is the single most important investment you can make in your business” has hit new levels of relevance amid the ongoing fallout resulting from the recent marketing missteps of several global brands. And the reputational blowback of these events is not limited to brand perception metrics but rather is having a tangible impact on companies’ balance sheets, staffing and shareholder relations.
For David Bennett (pictured), global head of sales, direct and facultative at WTW, whose daily duties include running the global broker and risk manager’s reputational risk management team, the shift in society’s perception of the peril has been fascinating to see first-hand. He noted that when WTW first started building its reputational risk insurance and crisis management product four years ago, it was significantly ahead of the curve.
“What we were trying to do was build out something new, which does take a bit of time, but is a lot of fun,” he said. “When we started crafting this solution, we were going out to loads of markets but either they weren’t interested, or they were interested to a point but not ready to take the plunge. That’s where Liberty Specialty Markets (LSM) came in, they really went for it, they wanted to be part of building out this market and they deserve a tremendous amount of credit for that.”
Four years later, the reputational risk insurance market is at a similar tipping point to where cyber stood about eight years ago, Bennett said. Typical capacity in the market stands at between $10 million and $20 million, while the LSM solution is more than double that at US$50 million in capacity – which is where it starts to become meaningful and attract the attention of larger organisations.
In the past, he said, a key inhibitor of uptake of this coverage has been the type of policy insurers were looking to write, with all-risk wordings or parametric triggers making it difficult to find common ground on what the policy actually entails. Responding to this, WTW and LSM developed an insurance product based around named perils, offering a ‘menu’ of risks to the insured - allowing the policy to be tailored to the risks pertinent to their business, industry sector and unique operational risk environment.
Key covers include the sale of harmful products, employee abuse, customer abuse, animal abuse, disease outbreak, bodily injury on-site etc. However, Bennett noted that the two perils commanding special attention at the moment are disgrace of a celebrity endorser and advertising abuse, with examples abounding of where an advertising campaign has not landed and has resulted in reputational damage.
“It’s a tricky line for companies that are looking to attract a broader base of customers to tread,” he said. “Because when you take a risk with your advertising, there is a danger that you can upset your existing customers, and we’ve seen how social media can amplify that effect.”
The impact of social media on the evolution of this product has been significant, and questions about a company’s social media strategies are inbuilt into the proposal forms behind these policies. The named perils approach taken by WTW allows insureds to understand the debit and credit of where their premium sits, he said, and also offers organisations the chance to dig into the ‘health and safety’ of their own reputational risk profiles.
“The really clever part of our solution is that it takes a three-pronged approach to this risk,” he said.
“So, the first element is that front-end technology piece. The second is the consultancy piece of our offering which is crisis communication consultancy and brand rehabilitation consultancy. And the third element is the risk transfer. And they’re tied in together because this offering is designed to manage, mitigate and repair.”
The three elements all work in close cohesion, with the front-end platform allowing real-time response to any incident while the crisis management solution is proactively protecting against significant adverse publicity, either alleged or actual. That could be a single article in the Press or even just a Tweet, he said, and the insured does not have to have suffered a loss to get access to that protection.
When it’s not possible to get ahead of the incident, that’s where the risk transfer piece steps in and the named perils nature of this coverage allows for certainty of cover. What sets the risk transfer element of this policy apart is the claims element of the offering – with insureds entitled to access about 40% of capacity after three months. This essentially serves as a ‘bridging loan’, he said, at the point when an insured is at the height of an event and most in need of that injection of liquidity.
“Traditional products would pay out at the end of an indemnity period of maybe six-to-nine months, but that’s probably too late for a lot of businesses,” he said. “When your warehouse burns down, it can’t burn down anymore but your reputation can just keep going and going. The wrap-around nature of this solution is that it provides management and boards with that fiduciary umbrella which [recent examples] have shown is so important.”
For Bennett, this offering is an example of what innovation means in the context of insurance - taking things that existed before and applying them to a new and emerging risk. Technology tracking platforms, crisis management consultancies and named solutions all existed before, albeit in other lines of business, he said. What WTW and its partners have achieved is pulling all those things together and applied them to the landscape of reputational risk insurance.
As to how that landscape is reshaping itself, Bennett highlighted that the financial squeeze facing many organisations will bring some pressure to the market. This is a new product, he said, and so people’s existing budgets don’t cater for it, which has to be factored in. However, there’s no doubt that reputational risk has found its way on to the board-level agenda of most businesses, with Aviva’s 2023 risk insights report naming ‘Loss of reputation’ as the fourth most pressing risk facing UK businesses today.
With that in mind, he said, WTW is seeing a healthy pipeline of interest, with 50 or so companies at various stages of the sales cycle. This year, the company is looking at doubling or even tripling the number of clients it is binding – with eyes already fixed on double figures by next year.
