‘90% of reputation losses uninsurable’

Vicky Beckett 21/02/2012

At least 90% of reputational risks are uninsurable but a huge 95% of businesses have suffered from them in the last two decades, reports show.

The reasons behind these misfortunes are varied and unpredictable, from the aftermath of 9/11, to changes in technology, rumours of product contamination, failed international expansion, fraud and M&A activity, said Ellis said Phil Ellis, the CEO of Willis Global Solutions Consulting Group.

Ellis has called for rapid innovation in the insurance industry addressing the glaring gap that exists for reputational risk cover. Willis has also started working on developing ways to measure falls in reputation.

Ellis’ research into 600 publicly-held businesses found major firms suffered significant reversals of fortune once every seven years. Of corporations, 19 out of 20 had at least one such reversal over the 20-year time span of the research.

“About 50% of the events we investigated were related to problems with the company’s business strategy or model, 15% were from lawsuits, 10% were due to M&A problems,” he said.

He noted that until last year natural catastrophes were not a factor in reputational crises.

Ellis said: “Our industry deals with protection against named perils, a storm, a fire, an explosion, piracy, a war for example. Some of these or a combination may damage a company’s reputation, but usually they do not.

“In fact, based on our own research, less than 10% of major reputation-damaging events are due to an insurable, peril-related event.

“As a result, 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,” he said.

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

“A worrying 80% of a company’s leading risks, of which reputation is just one, are uninsurable with today’s products,” said 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.”

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‘90% of reputation losses uninsurable’

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