Comment – will the insurance market ever cover reputational risk?

Reputation consistently comes up as a top concern in surveys of Airmic members, and the recent research from ACE offers valuable insights into the subject with practical recommendations as to how to tackle it. At the same time it shows what an elusive topic reputation is for risk managers, and how far the insurance market is from genuinely finding a solution to it.

Reputational insurance products tend to cover the cost of remedial work, such as the hiring of crisis PR specialists. This may be worthwhile under certain circumstances, but it is not the same as providing financial compensation for the loss of reputation. To use an analogy, it would be like buying a Property policy that paid for fire fighters without offering a penny towards the cost of replacing a burnt-out building.

The reason is obvious. Calculating the value of a reputation both before and after a particular event is expensive, subjective and imprecise. Defining what constitutes an event that could trigger a pay-out is equally open to debate. Given the unhappy experience of many Airmic members with supply chain insurance, a relatively tangible risk, the potential for claims uncertainty and disappointment with reputational cover is enormous.    

The insurance market has recently shown itself to be more innovative and willing to meet customer needs than perhaps at any time in its history. It will be interesting to see how it rises to this challenge.

In the meantime the ACE report offers one piece of excellent advice to Airmic members - to take a ‘reputational lens’ to more traditional risks to evaluate the reputational consequences in each case. Risk managers can make a valuable contribution to their companies by helping to reduce the chances of reputational damage happening in the first place.