Less than 10% of reputational risks are insurable

Reputational risk insurance needs to be improved urgently, global insurance broker Willis warned at a London seminar recently.

A staggering ninety-five percent of the 600 corporations Willis quizzed suffered at least one major reputational crisis in the last 20 years, but less than 10% of those were insurable.

At the seminar, Willis produced research showing that major firms suffer a significant reputation hit approximately once every seven years.

Click here to see StrategicRISK’s info-graphic: The Price of Reputation

The reasons behind these reversals are difficult to predit, said Phil Ellis, the chief executive of Willis Global Solutions Consulting Group.

“About fifty percent of the events we researched had to do with problems with the company’s business strategy or model; 15 % were from lawsuits; 10 % were due to M&A problems; notably, until 2011 natural catastrophes were not a factor in these reputation crises.”

Willis’s research predicted that less than 10 % of major reputation damaging events are due to an insurable event. They warned of a lack of viable insurance solutions for reputational risk.

Standard insurance products aren’t designed to help out when reputation is damaged

“Our standard insurance products aren’t designed to help out when reputation is damaged, except when a policy against a peril, like product recall, coincides with a fall in reputation. But even then the sums paid are not enough to turn the heads of any reputation stakeholder,” Ellis continued.

“Clients want immediate payment from their insurance policies when it comes to reputation cover. The solution should be priced significantly below the cost of capital, with as few exclusions as possible and very high limits.

“Insurers have so far not shown any real interest in responding to these needs, and so we’re looking increasingly towards capital markets for answers.

“A worrying eighty percent of a company’s leading risks, of which reputation is just one, are uninsurable with today’s products,” added Ellis.

“The insurance industry itself is facing a fall in its own reputation for not keeping up with new and emerging risks, and we have a long way to go in order to improve our relevance and standing in corporate risk finance and management,” he concluded.