Aon, AIG and Willis Group all announced new insurance products last month to help companies deal with reputational risk. The products are not directly competitive, as each targets a different market and takes a different approach. But clearly the spate of offerings reflects a growing concern about risks to a company’s reputation. Laurie Fraser, global markets leisure practice leader at Willis, suggests the 2010 BP oil spill in the Gulf of Mexico made companies more aware of the huge damage that can be caused by a “sensationalist press.”
The spread of the Internet and social media have increased the speed at which reputations can be damaged, says Randy Nornes, executive vice president of Aon Risk Solutions. When a problem occurred “20 years ago, you might get 30 to 45 days to handle managing your brand. Now, it’s four to five days at best, and it could be less time than that,” he says, adding that “these kinds of things can happen to anybody.”
Willis’ HRP 2.0 (for hotel reputational protection), focuses on the leisure industry, which Willis’ Fraser says lives and dies by reputation. A recent survey found the two biggest reputational risks cited by hotel executives were food poisoning incidents and reports of a death in a hotel, she says. The product offers close to $30 million to cover the costs of crisis management and lost revenue from a reputation-damaging incident.
AIG’s product, ReputationGuard, offered through its Chartis unit, targets companies with revenue under $3 billion. The product doesn’t provide income protection, but helps companies develop reputational risk management strategies and cover the costs of dealing with negative publicity. Buyers get discounted rates on crisis plan development from two major public relations firms, Burson-Marsteller and Porter Novelli.
Aon aims at the Global 1000 with its product, Aon Brand Restoration. Nornes says the product, which is triggered by any of 19 specific risk events, including the loss of a key executive or a product boycott, pays for losses up to a $100-million limit. But he says the key is applying an “engineering approach” to the problem, identifying a company’s greatest reputational risks and then acting to reduce those risks.
“The advantage of having people come in and assess your risks ahead of time is that if you later do have an issue, you can call in people to help deal with it who know the situation and can jump right in,” Nornes says.
The three companies say the costs of their products are reasonable, particularly considering that a damaged reputation can batter revenue for a long time and knock a company’s market value down by 20% to 50% within days.
For a look at the risks and rewards involved in employees’ use of social media, see Facing Up to Facebook.