Reputational risk insurance policies are few and far between, but they're essential for companies of all sizes in today's complex, fast-paced world. So why aren't more insurers offering reputational risk as a standalone product?
Between the recent United Airlines scandal, Pepsi's mind-boggling advertisement and Uber's string of management failures, controversy seems to be all around us. And the backlash against these global brands has been swift and substantial; United Airline's share price dropped by as much as 6.3% in pre-market trading after a passenger was forcibly removed from a flight in April, wiping $1.4 billion of its stock value.
The reality is that companies are more exposed to reputational damage and negative backlash now more than ever, particularly in today's digital world. Modern consumers are demanding transparency, authenticity and accountability from brands and companies - and they have the power to boycott and call-out organisations that aren't up to scratch.
The insurance challenge
But from an insurance perspective, there's little in the way of protection for a company's reputation. Why? Because reputational risk is uniquely intangible.
Speaking to Insurance Business, Stuart Davies of Arthur J. Gallagher explained that reputational risk is highly complex by nature. Currently, the industry can offer cover in terms of PR expenses following a reputation-damaging incident, but securing coverage for consequential costs and losses following an event is challenging.
"In terms of consequential revenue loss, that is a little more complex in nature," says Stuart. "And I think with that it really needs to be more of a risk approach that a product approach."
Small businesses are at risk too
There's a tendency to think of reputational risk as something that only applies to large companies and consumer-facing brands, but that's not the case. According to Davies, the direct and consequential costs of a negative PR incident are enough to justify coverage even for small and medium-sized businesses.
"With PR response and costs there is no reason in my view why any small to medium business now wouldn't be looking to purcahse those coverages. They are readily available; they just need to know where to look."