The UK’s Association of Risk Management and Insurance (Airmic) reports that the insurance industry is reviewing ways to better protect corporates against reputational risk and its damaging consequences, which could lead to new products being launched to mitigate the impact.
“We have about 1,200 individual members in the UK who are risk and insurance managers who sit in about 500 companies,” said John Hurrell, chief executive officer (CEO) of Airmic. “We survey our members every year about what is keeping them awake at night. Reputational risk has come up in the top three in the last five years.
“You can replace the assets. That is straightforward and in some cases insurance will pay for it. But will the public trust you afterwards? Is there a question mark over your brand? Are these the sort of people you want to do business with?”
Airmic’s research in risk management has shown that after a catastrophic event – whether suffered by a bank, oil company, facility, airline or railway – the organisation suffered reputational damage. “It is the reputational damage that kills you,” said Hurrell.
Airmic’s 2011 study
‘Roads to Ruin’
undertaken with Cass Business School, detailed 23 high-profile crises over the previous decade which severely impacted on the firms’ reputations in tatters were examined. Examples included BP, Airbus, Northern Rock and AIG. Few firms emerged without any obvious immediate damage.
Six firms of the 23 firms collapsed and while three of these were revived, this was achieved only through a state rescue and/or what amounted to nationalisation. Most suffered large, uninsurable losses and their reputations were damaged, sometimes severely. The position of most chief executives and chairmen were put into question.
Another piece of research from 2014, entitled
‘Roads to Resilience’
, which Airmic undertook with Cranfield School of Management, reviewed companies with a good reputation for safety management and governance to help firms avoid corporate catastrophes.
It demonstrated that these companies had drilled risk management practices down into their behaviour and culture and were better able to identify risks.
They were also able to be more responsive to their customers and markets, their staff and suppliers were motivated and loyal, they gained trust by being more dependable and achieved better results for shareholders.
Hurrell said that Airmic is in discussions with the Reputation Institute to see if there are ways of being more objective about measuring the actual financial value of reputation and the consequences of a failure of risk management.
“If that is the case, we can then start to talk to the insurance industry about how they can underwrite the risk and at which point we help the people buying those policies to focus on different ways to manage the risks more effectively,” he added.
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